Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

VAN DIEMEN'S LAND COMPANY BILL (Lords)

Read a Second time and committed.

BRITISH RAILWAYS (SELBY) BILL (By Order)

Lords amendments agreed to.

FELIXSTOWE DOCK AND RAILWAY BILL (By Order)

As amended, considered; to be read the Third time.

Ross AND CROMARTY (COASTAL WATERS POLLUTION) ORDER CONFIRMATION BILL.

Order for consideration read.

Bill to be considered upon Thursday next.

Oral Answers to Questions — DEFENCE

Polaris

Mr. Cryer: asked the Secretary of State for Defence whether he will make a further statement on the replacement of Polaris.

The Secretary of State for Defence (Mr. Francis Pym): As I made clear in the House on 12 June, we shall take all the steps necessary to ensure that the Polaris force remains a deterrent to aggression into the 1990s. I shall not, however, be in a position to make any statement about a successor to Polaris until we have given very careful scrutiny to all the possible options.

Mr. Cryer: Does the Secretary of State accept that Polaris is expensive, outdated and deters no one? Does he agree that our support of the nuclear non-proliferation treaty could be demonstrated by the withdrawal and abandonment of Polaris? Will he assure the House that before any irrevocable steps are taken for any replacement he will come to the House for a decision rather than allow the military clique to make a decision, as happened in 1946 when we started out on this path?

Mr. Pym: I do not accept that Polaris is expensive for the role that it performs. We firmly believe that it makes a major contribution to our deterrent capability. The question of a successor system to Polaris is under consideration, as I have indicated, and it is the Government's conviction that because the nuclear deterrent achieves its objective we should consider its future.

Mr. Wall: Will my right hon. Friend confirm that our ballistic missile submarines could be adapted for Trident 1, and would not Trident 1 and the cruise missile make the right mix for the next generation?

Mr. Pym: My right hon. Friend has referred to a number of possible options which are relevant to other aspects of the nuclear deterrent, and I have these under review.

Mr. Cook: Has the Secretary of State had an opportunity to study the sixth report from the Expenditure Committee on this matter? If so, has he read the interesting memorandum from Field Marshal Lord Carver, in which the noble Lord points out that the cost of a successor system would not be justified if it were viewed as support for the American system, and that the circumstances in which it would be likely to be used in isolation from the American system are very unlikely to occur? In view of those sage words of advice from Field Marshal Lord Carver, does the Secretary of State think the Government would be justified in spending £3,000 million on a replacement?

Mr. Pym: The opinions expressed by Field Marshal Lord Carver are extremely important because of the positions that he has held. But they are matters of opinion, and there are judgments to be made, in concert with our allies. These


are the kinds of considerations and factors that are under review in our contemplation of how we ought to proceed in the 1990s after the Polaris system has completed its useful life.

Mr. Buck: Will my right hon. Friend confirm that article 12 of the SALT agreement will not inhibit the United States of America from giving us technical information, as necessary, to get this very important and most necessary replacement for Polaris, a matter which many of us on the Conservative Benches regard as of great urgency?

Mr. Pym: I agree with my hon. and learned Friend that the importance of this technology within the alliance and between the United States and ourselves is very great. The Government have received assurances that the agreement will not interfere with continued nuclear and technical co-operation between the United States and its allies, and that the essential security interests of the alliance are safeguarded.

North Atlantic Treaty Organisation

Mr. Temple-Morris: asked the Secretary of State for Defence when he intends to meet his colleagues in the North Atlantic Treaty Organisation.

Mr. Pym: I expect to meet my NATO colleagues at the ministerial meetings of the nuclear planning group and defence planning committee later this year.

Mr. Temple-Morris: Is not my right hon. Friend only too well aware of the danger to NATO and to Europe caused by the Russian SS20 missile? Will he undertake to discuss with his NATO colleagues, and more particularly with Defence Secretary Brown during his coming visit to the United States, the whole question of the modernisation of the theatre nuclear force?

Mr. Pym: There is no doubt that the weapon developed by Soviet Russia, mentioned by my hon. Friend, and the general build-up of military strength by the Warsaw Pact countries present the NATO Alliance with a formidable threat. The most urgent aspect for us is the modernisation of theatre nuclear forces, to which my hon. Friend refers. It is the intention of the Alliance to try to take decisions on this important subject

by the end of the year. I shall have this matter very much in mind during my visit to the United States next week.

Mr. Rodgers: In advance of his next meeting with his NATO colleagues, the right hon. Gentleman will be aware of the deep concern felt about the security implications of the explosions that took place earlier today at British Army establishments in Germany. Will he make a statement to the House now, or will he give further details at a later stage?

Mr. Pym: I am sure that everyone in the House will join me in condemning the two bomb explosions that took place at BAOR messes in the early hours of this morning. Although there has been extensive superficial damage, I am glad to say that no one was injured in either incident. Service units have since been put on a higher level of security alert, and investigations into the bombings are being carried out with the utmost urgency. Obviously, we want to know, as soon as possible, everything that we can about the incidents, who caused them, who is responsible, why they happened and whether our own internal security is adequate.

Mr. Amery: Has the attention of my right hon. Friend been drawn to the proposals now under discussion in Washington for the formation of a unilateral force to intervene in defence of Western interests outside NATO? Has his attention further been drawn to similar proposals which appear to be under discussion in Paris? Will he consider, both within his Ministry and when he meets his NATO colleagues, whether we might usefully make a contribution in the same direction?

Mr. Pym: I am aware of the plans being prepared in the United States, and, as my right hon. Friend knows, in an earlier office which I held when sitting on the Opposition benches I took particular interest in events in the Middle East and other areas outside NATO. It is very much in my mind to pursue this matter and make assessments, with our American allies, when I go to the United States next week.

Mr. Newens: Does the right hon. Gentleman intend, at any time, to raise with his colleagues in NATO the question of


the heavy cost to the British economy of the British Army of the Rhine? Does he accept that, in the interests of this country, steps must be taken at some stage to reduce the very heavy burden we are carrying?

Mr. Pym: This issue has been raised on a number of occasions with the Federal Republic of Germany. The last agreement was reached by the previous Administration, which the hon. Gentleman supported when he was on the Government Benches. It has, I think, another year or two to run. I am aware of the point that the hon. Gentleman makes. I have to make further progress in saving money, if it is possible, in the light of the agreement reached by the previous Government.

Air Defence

Mr. Churchill: asked the Secretary of State for Defence what plans Her Majesty's Government have for increasing the size and numbers of fighter squadrons available to the Royal Air Force for the air defence of the United Kingdom.

Mr. Alan Clark: asked the Secretary of State for Defence if he is satisfied with the current state of air defences; and when he expects to be able to make a statement.

The Under-Secretary of State for Defence for the Royal Air Force, (Mr. Geoffrey Pattie): The Government have made plain their resolve to strengthen the nation's defences, and I can assure my hon. Friends that improvements to our air defences are very high on the list of priorities. As I indicated during the Adjournment debate on 15 June, the Air Staff are currently studying ways and means of making much needed improvements. My hon. Friends will know of the importance that the Government attach to air defence and will, I am sure, understand our desire to achieve the right solution to the considerable air defence problems that we have inherited. I hope to make a further statement soon.

Mr. Churchill: My hon. Friend's words will be much appreciated on the Government Benches and by the Royal Air Force. Will he accept that one of the earliest actions that could be taken would be the arming of the Hawk trainer force with Sidewinder? Is my hon. Friend fur-

ther aware that it is unacceptable that the Royal Air Force should have to wait until the second half of the 1980s for a new generation of fighter aircraft to replace the 70 or so Phantoms and Lightnings, which represent the technology of the 1950s? Will he give urgent consideration to the possibility of the purchase of a big wing of F-14 or F-15 aircraft, which would provide the necessary protection?

Mr. Pattie: My hon. Friend is accurately giving a résumé of the several options that we are considering. I assure him that these options will be examined with appropriate urgency.

Mr. Clark: Does my hon. Friend agree that time is of the essence and that the longer he and his right hon. Friend delay in filling this gap the greater is the likelihood that we shall be stampeded into buying obsolescent American equipment? Does not my hon. Friend agree that, whatever short-term measures may be required, his strategic objective should be to found the rebuilding of our air defences on aircraft and missiles designed and built as far as possible within the United Kingdom?

Mr. Pattie: I support my hon. Friend's last point. We should endeavour to supply our air defence requirements from within our own, or from within European, industrial capability. I said in my original answer that I hoped to make a further statement soon. I hope my hon. Friend does not feel that we are dragging our feet.

Mr. Stan Thorne: Will the Minister enlighten the House about the Government's plans for selling off British Aerospace factories in Preston to private enterprise?

Mr. Pattie: I hardly feel that that issue comes within the ambit of this question.

Mr. Kershaw: Will my hon. Friend do what he can to press on with the hardening of our radar defences, and will be also bear in mind that ground defence weapons, especially in the West, are a quick way of filling a gap?

Mr. Pattie: I entirely agree with what my hon. Friend says.

Mr. Flannery: Does the hon. Gentleman agree that the massive cuts, right across the board, that are about to reduce our schools to a difficult position are not consonant with a colossal increase in armaments? Will he enlighten the House on how soon he expects the Russians to attack? Should we not all run for cover right now because, obviously, we are all in great danger from the American miscalculation known as Skylab?

Mr. Pattie: The hon. Gentleman does not seem to appreciate that in the modern world the capability of the Warsaw Pact to threaten, through military blackmail, to achieve what it wishes is perfectly possible. Therefore, it is not necessarily for the hon. Gentleman to say when we might receive an invasion. The possibility of blackmail remains.

Mr. Speaker: Order. Before I call the next question, I must appeal for supplementary questions to be briefer.

Nuclear Strategic Force

Mr. Nelson: asked the Secretary of State for Defence whether he will make a statement on the impact of technological developments in submarine detection on the timing and nature of the replacement of Great Britain's nuclear strategic force.

Mr. Pym: The vulnerability of different launch platforms to pre-emptive attack will be an important factor in determining the best option for an eventual successor to the Polaris force, but I can assure my hon. Friend that it is not a factor which will adversely affect the operational life of the present force.

Mr. Nelson: Does my right hon. Friend accept that recent advances in antisubmarine detection devices and weapon systems substantially diminish the basic advantage of the submarine as an undetectable launching device? In view of these advances, has my right hon. Friend arrived at any preliminary conclusion on whether any replacement for our nuclear deterrent should be airborne rather than submarine-based?

Mr. Pym: I have not yet arrived at a preliminary conclusion. It would be premature to do so. I assure my hon. Friend that we are well aware of the develop-

ments in anti-submarine technology. Equally, we are aware that our own capability in counter-anti-submarine measures remains very well advanced. We have every confidence in the security of our existing submarines.

Mr. Douglas: Will the Secretary of State concede that, no matter how he looks to the future, the present situation in relation to our deterrent is serious and is made more serious by the continuance of the industrial dispute? Will he enjoin his colleagues in the Civil Service Department and the Department of Employment to get the dispute settled as quickly as possible?

Mr. Pym: I am grateful to the hon. Gentleman for what he has said, because I share his desire to end this dispute as quickly as possible. Clearly, it is having some consequences upon our defence effort, and the sooner it is ended the more satisfied I shall be.

Service Women (Pensions)

Dr. Summerskill: asked the Secretary of State for Defence whether, in view of his recent announcement that the entitlements generally of Service women should be brought into line with those of men, he will now take steps to bring the pension entitlements of Service women into line with those of Service men.

The Under-Secretary of State for Defence for the Royal Navy (Mr. Keith Speed): The personal pensions of Service women are already in line with those of their male colleagues. However, unlike the widows and dependent children of Service men, the widowers and dependent children of Service women are not at present eligible for pensions. I have already begun an examination of this aspect.

Dr. Summerskill: I welcome the examination which the hon. Gentleman is undertaking, but will he bear in mind that in April last year the Labour Government found the money to introduce equal pay for equal work among Service men and Service women, and will he therefore find the money to introduce an equal pension scheme for widows and widowers within the Services?

Mr. Speed: I am pressing on and looking into these matters as quickly as I


can, but it will take a little time. We are looking into the problem, which is one of trying to bring both sides into line. I shall make an announcement as soon as possible.

Mr. Gummer: While my hon. Friend is looking into the question of Service women and their rights under the pension scheme, will he look also into the problems of widows of Service men who lose their pension for all time when they remarry a Service man who does not carry a widow's pension?

Mr. Speed: That is another matter, which does not relate to the present question, but I am aware of the problems to which my hon. Friend refers.

Mr. Concannon: While the Minister is looking into these anomalies, will he look at another one, raised by the Ex-Regular Servicemen's Pensions Association, relating to those who were retired prior to 1973 and those retired after 1973? The discrepancy in pension is pretty large.

Mr. Speed: This matter revolves around the various pension Acts. I am not sure that I can give a firm guarantee on that. There are many anomalies in pension schemes—the hon. Member for Isle of Wight (Mr. Ross) and others mentioned them at our last Question Time—and we are looking into these various aspects.

Service Personnel (Travel Facilities)

Mr. Viggers: asked the Secretary of State for Defence if he is satisfied with the off-duty travel facilities available to personnel of Her Majesty's Forces.

Mr. Speed: The entitlements of Service men stationed in the United Kingdom are currently under review. At present they have a basic allowance of four free leave travel warrants during each year for return journeys from their duty station to any destination in the United Kingdom. In addition, married Service men separated from their wives are entitled, subject to certain conditions, to up to eight free separation warrants annually.

Mr. Viggers: Does my hon. Friend recognise that most civilian firms which require their employees to work away from home offer better travel facilities than our Armed Forces do at present? Does he realise that, now that the present

Government have put right the pay, which was left so bad under the previous Government, the provision of travel facilities has become a top priority? Will he look at it on that basis?

Mr. Speed: I certainly want to see improvements in this respect. There is a particular problem for the Navy, and there is a problem generally. It is my desire to improve the off-duty travel facilities if we possibly can. We are looking into the matter.

Pay and Records Office, Exeter

Mr. Hannam: asked the Secretary of State for Defence if he will make a statement on the relocation plan for the Army pay and records office at Higher Borrash, Exeter.

The Under-Secretary of State for Defence for the Army (Mr. Barney Hayhoe): As my noble Friend the Minister of State, Ministry of Defence, explained when my hon. Friend brought a deputation from the local staff sides and the Exeter city council to see him on 20 June, these relocation plans are in abeyance pending the outcome of the current reappraisal of the Government's dispersal programme which my hon. Friend the Minister of State, Civil Service Department, announced on 11 June.

Mr. Hannam: Is my hon. Friend aware of the deep anger which was caused by the announcement of the transfer of jobs from one area with high unemployment to another area of high unemployment, after several years of substantial expenditure on establishing these pay and records offices in the West Country? Will he therefore exert as much pressure as possible to secure an early reversal of that decision?

Mr. Hayhoe: I am certainly aware—my hon. Friend has taken good care to ensure that Ministers are aware—of the deep feelings on this matter, and especially about the timing of the proposal, which came out just before the election. We hope that the announcement of the outcome of the review now being carried out will be made before the Summer Recess.

Mr. Robert C. Brown: Is the Minister aware that, wherever the pay may originate, our Regular Armed Forces are


delighted with the recent record increase which they have had, but is it not about time that the members of the Territorial Army and Volunteer Reserve had their boundaries increased in line with the Shapland recommendations?

Mr. Hayhoe: I am glad that my predecessor acknowledges his own sense of, I presume, shame and guilt at not having been a party to the substantial pay increases which he now recognises were necessary. As regards the Shapland recommendations and the question of bounties, these matters are under active consideration and an announcement will be made as soon as possible.

Mr. Maxwell-Hyslop: Will my hon. Friend bear in mind that the Labour Government's attempt to buy a few votes with this entirely political decision, made just before the election and too late to be questioned in Parliament, has nothing whatever to do with the Hardman report on relocation from London?

Mr. Hayhoe: My hon. Friend is quite right, and in any case conditions have changed so much in relation to the Hardman report that that is one of the reasons why the Government have announced a review of all these matters.

South Africa (Defence Minister)

Mr. Brotherton: asked the Secretary of State for Defence if he has any plans to meet the Defence Minister of South Africa.

Mr. Pym: No, Sir.

Mr. Brotherton: In view of the great Russian threat in the Indian Ocean, does not my right hon. Friend think that such a meeting would be valuable, and does he not agree that the time has come to reactivate the Simonstown agreement?

Mr. Pym: I would not disagree with my hon. Friend's proposition that in due course such a meeting would be useful, but I should say that we have no plans at the moment for renegotiating the Simonstown agreement. Naturally, we are concerned about the presence of the Soviet Navy in such strength in the Indian Ocean, but that strength is, of course, balanced by allied forces, and it is an area, like many others, which we are keeping under constant review.

Mr. McNamara: Can the right hon. Gentleman explain what advantage there would be if we were allied with South Africa in trying to counter the Russian threat in the Indian Ocean? Secondly, will he take this opportunity to confirm that Her Majesty's Government have no intention of again selling arms to South Africa, for either internal or external use?

Mr. Pym: On the latter point, we have fulfilled, and taken the steps necessary to fulfil, the United Nations resolution on that subject. I did not speak about being aligned with South Africa in naval matters. I made no proposal of that kind, but it seems to me to be a possibility for the future that I might at some moment meet my opposite number there. But I have no plans to do so at the moment.

Mr. Cyril D. Townsend: Although I, personally, should doubt the wisdom of going back to Simonstown, will my right hon. Friend make clear that, in principle, the Government would be willing to share maritime intelligence with the South African Navy and also to carry out training with the South African Navy?

Mr. Pym: That is a matter which I should certainly be prepared to consider, although I think I am right in saying that the South African Navy has given no indication that it particularly desires such an exchange or co-operation of that kind.

Mr. Hooky: Will the right hon. Gentleman take it that his statement that he has no intention of meeting this gentleman will be very welcome, at least on these Opposition Benches, but will he make clear also through the appropriate channels that the military connivance of South Africa with the illegal regime in Rhodesia is a hostile act to this country and will bring down reprisals on South Africa?

Mr. Pym: On the first point, I did not say that I had no such intention. I do not actually have immediate plans to do so. I do not think that in a matter of defence and the protection of our sea routes one ought to exclude a conversation at some stage on that subject. The point raised in the second part of the hon. Gentleman's question is a matter for my noble Friend the Foreign and Common-wealth Secretary.

American Service Families (East Anglia)

Mr. Gummer: asked the Secretary of State for Defence what discussions he has had with the American authorities on housing for service families at bases in East Anglia.

Mr. Pattie: .The United States Air Force authorities in the Bentwaters-Woodbridge area have sought the help of the local authorities over the difficult housing problem there. The Suffolk county council has written to the Department of my right hon. Friend the Secretary of State for the Environment, my own Department and other interested parties and asked if a meeting could be convened. This is being looked into. I would certainly expect my Department to be represented at any such meeting.

Mr. Gummer: Will my hon. Friend accept that the people of Suffolk wish to extend the greatest hospitality to those who are there helping to defend the West, and that if they are to do so they need as much help as they can get from his Department in the circumstances of the Government cutbacks which are necessary but which bear heavily on the county of Suffolk?

Mr. Pattie: I shall ensure that my hon. Friend's comments are reported to the appropriate quarter.

Mr. Newens: Is it not vital that we give consideration to our Service men in the circumstances in which they are demobilised, given notice to quit and have considerable difficulty in getting accomodation allocated to them from local authorities? Is it not vital that we take care of that issue in the first place?

Mr. Pattie: I do not know whether I agree with the hon. Gentleman when he says " in the first place ", but he refers to a matter that is of at least equal importance to the matter raised by my hon. Friend the Member for Eye (Mr. Gummer). The hon. Gentleman has a point of substance.

Mr. Hawkins: Does my hon. Friend agree that it is far better for RAF Service men to live on the station rather than being forced by high rents that have been set in the past to push out into the neighbouring villages and live off the station?

It is a major problem because many houses on RAF stations in East Anglia are empty.

Mr. Pattie: My hon. Friend is right when he says that it is desirable for RAF personnel to live on the station. It is our wish to encourage that state of affairs.

Service Personnel (Trade Union Membership)

Miss Richardson: asked the Secretary of State for Defence whether he will permit trade unions to recruit members of the Armed Forces.

Mr. Pym: Members of the Armed Forces may join existing trade unions as individuals provided this does not involve them in activities which would conflict with their military duties. Tradesmen who are nearing the end of their military service are encouraged to seek union membership as an aid to resettlement. There are, however, no plans for authorising any form of collective representation, and the question of allowing trade unions to recruit for that purpose does no, therefore, arise.

Miss Richardson: Does the right hon. Gentleman agree that it would be better for Service personnel to have a proper procedure for airing grievances through trade unions rather than have the shabby situation of the wives of Service men being forced to demonstrate on behalf of their husbands to get proper pay? Were we not the subject of some comment in other countries, where trade unionism is regarded as a basic right in their armed forces?

Mr. Pym: I do not agree with the hon. Lady. As my hon. Friend the Under-Secretary of State for Defence for the Royal Navy said last week, the Government are not convinced that it is a desirable step in itself or one that would necessarily benefit Service men. I should add that there is no evidence that the idea commands any degree of significant support within our Armed Forces.

Mr. Emery: Will my right hon. Friend resist any siren voices from trade unions trying collectively to unionise the British military forces? That would be a most deleterious approach, and it is something that should be widely resisted.

Mr. Pym: If such voices were raised, they would not be all that well received by those to whom they were directed.

Mr. Heffer: Why do the Government take a more negative view than some of our NATO Allies, who have trade union organisation in their Armed Services? It is not clear that it is time that the Government came up to date and recognised an organisation similar, perhaps, to that in the police force?

Mt. Pym: There are some countries in the NATO Alliance which do not permit trade unionism of any sort in their Armed Forces. The hon. Gentleman should take note of that. He should also remember that my predecessor took a different view from the one that he takes. I see no reason to depart from my predecessor's view.

Hong Kong

Mr. Hooley: asked the Secretary of State for Defence what is the estimated cost of sending reinforcements from the United Kingdom to the Hong Kong garrison; and who will bear that cost.

Mr. Pym: The estimated cost of the reinforcements to the Hong Kong garrison is some £25 million for a 12-month period. This includes the cost of movement from the United Kingdom and Brunei. The proportion of these costs which will be borne by the Hong Kong Government is under discussion.

Mr. Hooley: Is it not time for us to end this stupid charade of maintaining a military garrison 10,000 miles away in a Chinese city? Is the right hon. Gentleman aware that if any conflict arose the Chinese could turn off the water for the whole of Hong Kong at the turn of a tap?

Mr. Pym: Her Majesty's Government are responsible for Hong Kong's external defence and its internal security. It is in response to that responsibility that we have recently sent reinforcements.

Mr. Eldon Griffiths: Is my right hon. Friend aware that the speedy dispatch of British soldiers and the firm and humane way in which they have operated in a difficult situation in Hong Kong commands the admiration of the House and the British public?

Mr. Pym: I am grateful to my hon. Friend for his comments. It is true that the reinforcements went to Hong Kong quickly and that the battalions already there and the reinforcement battalion have been fully and effectively deployed in difficult work. The Governor and Government of Hong Kong are as appreciative as I am sure the House is of the contribution made by our Services in Hong Kong.

FV Type 710 Osprey

Mr. Stephen Ross: asked the Secretary of State for Defence what recent appraisal has been made of the effectiveness of the FV Type 710 Osprey fishery inspection vessel as now in service with the Danish Navy.

Mr. Speed: As the hon. Gentleman will know, representatives of my Department had the opportunity to visit the Osprey when she was in London recently, but we have not yet had the opportunity to see her operating at sea in the patrol role.

Mr. Ross: Will the Government pursue their interest in the Osprey? As the Government are seeking economies in public expenditure, does not this type of vessel make a great deal more sense than the more expensive type of vessel and aircraft protection that we now have for fishery protection? Would not standardisation within the EEC make more sense, this being a British designed ship al-tough, unfortunately, built in Denmark?

Mr. Speed: We shall be pursuing investigations into the Osprey in a patrol role. We were especially interested in ascertaining how the vessel could cope with rather rougher water than we have seen so far. She is one of the designs being considered—there are a number of others—for this sort of vessel. No final decision will be taken for a number of months.

Mr. James Johnson: Is the hon. Gentleman satisfied that these vessels have the seagoing qualities that are needed for fishery protection? Does he think that they are in any way comparable with the Island class, which the Labour Government introduced? I do not think that they are.

Mr. Speed: The hon. Gentleman takes up the very point that I was making. That is why we want to see Osprey in rough weather. She will have to stand up to the sort of weather that the hon. Gentleman knows well. A requirement will be for boarding operations in sea state 6, for example. If she cannot stand that up to distances of 200 miles from our shores, frankly, she will be no use.

Mr. Farr: Has my hon. Friend investigated whether these vessels will be suitable for strengthening our North Sea oilfield patrol force?

Mr. Speed: That is all part and parcel of the same sort of requirement that we are considering in the offshore role. That is one of the items that we shall be considering in terms of the Osprey, together with a number of other designs that are now being evaluated. As my hon. Friend will know, the rigs are some considerable distance from our shores. Therefore, these ships will have to withstand rough weather conditions and must have the necessary endurance and proper sea-keeping qualities.

Mr. Dully: Will the Minister confirm that there has been no reluctance on the part of his Ministry to undertake the appraisal to which the question refers? Does he agree that there has been unwillingness on the part of the makers to furnish his experts with the requisite information?

Mr. Speed: There has been no unwillingness on the part of my Ministry. We are still awaiting detailed information. I hope that it will be possible to obtain that information shortly and to gain first-hand experience in the sea conditions mentioned by the hon. Member for Kingston upon Hull, West (Mr. Johnson).

Nuclear Weapons

Miss Wright: asked the Secretary of State for Defence if any commitment has been made, at NATO Defence Ministers' meetings held since 3 May, to accept the development of new medium-range nuclear missiles and their possible basing in the United Kingdom.

Mr. Pym: The Government recognise the importance of ensuring that NATO's longer-range theatre nuclear forces are kept up to date, particularly in view of the greatly increased Soviet capability

in this area. However, decisions on the level and form of individual nation's contributions to a collective Alliance effort are not likely to be made before the end of this year.

Miss Wright: Does the right hon. Gentleman agree that the general acceptance of such weapons will inevitably heighten tension in the area and make prospects worse for SALT III and possible for SALT II? Will he comment on the recent statement by the United States Defense Secretary that an agreement would be reached on the modernisation of nuclear weapons for NATO before the end of the year?

Mr. Pym: The escalation of the military strength of the Warsaw Pact countries in the nuclear and non-nuclear sectors is such that it is necessary, in the view of the Alliance, to modernise our theatre nuclear forces. We cannot negotiate arms control or a reduction of arms except from a position of strength. Our most immediate concern is the way in which the military might of the Soviet powers is, as far as one can see, escalating and increasing more rapidly every year. It behoves us to ensure that we have a range of weapons capable of deterring any threat by the Soviet Union. From that position we would hope to be able to negotiate an arms control agreement that would reduce the number of forces and the strength of the armies on both sides of the Iron Curtain.

Mr. Wilkinson: May I draw my right hon. Friend's attention to the admirable leading letter in The Daily Telegraph yesterday written by Air Vice-Marshal Stewart Menaul in which he argued the cost-effectiveness and spoke highly of the capability of the air-launched cruise missile in the nuclear role?

Mr. Pym: Yes, I saw that letter. There are a number of possible weapons that would fulfil the nuclear capability that is desired. The Alliance is looking into those options. I am doing the same on the part of the United Kingdom.

Mr. Frank Allaun: How is it that more money can always be found for new weapons even when vital social services are being slashed?

Mr. Pym: Unless we can protect and secure the peace and the way of life of


the free Western world, there will be no social security to defend.

Mr. loan Evans: asked the Secretary of State for Defence, in view of recent international talks leading to a real reduction in nuclear weapons, if Her Majesty's Government will postpone plans for developing new nuclear weapons for basing these in the United Kingdom.

Mr. Pym: The Government have welcomed the SALT II agreement, but that does not remove the need to maintain the effectiveness of the United Kingdom's own nuclear contribution to the Alliance.

Mr. Evans: I welcome the fact that the Government accept the SALT II agreement. However, does the Secretary of State realise that the world is now spending £200 billion on the nuclear arms race? Rather than making more sophisticated nuclear weapons, would it not be better for there to be an agreement between East and West for balanced reductions of nuclear weapons?

Mr. Pym: The object of the policy is to reach a situation where we can reduce the forces on both sides. Our immediate anxiety is the scale of the increase on the other side. I do not think that the security of the Alliance can be made hostage to the hope of a future breakthrough on the arms control front. We must have something solid with which to negotiate. In the end we hope to reach that position. However, it feels a long way off at the moment.

Mr. Churchill: Bearing in mind that under the terms of the agreement the Soviet Union will be doubling its stocks of nuclear warheads, as opposed to nuclear missiles, will my right hon. Friend correct the inaccuracy on the Order Paper? When he meets Defence Secretary Brown in Washington shortly, will he take steps to provide a remedy for the grave imbalance that has arisen in European strategic weaponry?

Mr. Pym: I assure my hon. Friend that I have his remarks very much in mind.

Northern Ireland

Mr. Biggs-Davison: asked the Secretary of State for Defence whether he will make a statement on operations in Northern Ireland.

Mr. Hayhoe: As my right hon. Friend the Secretary of State for Northern Ireland made clear to the House recently, the object of our security policy in Northern Ireland continues to be the defeat of terrorism and the extension of normal policing. The operations of the armed forces in support of the Royal Ulster Constabulary continue to make an invaluable contribution to this aim.
I have recently visited the Province and received a thorough briefing on the Army's operations and had the opportunity to pay a visit to a unit in South Armagh. I should like to pay my full-hearted tribute to the dedication of the Service men in Northern Ireland who carry out a very difficult task in often uncomfortable conditions with cheerful good humour and great skill.

Mr. Biggs-Davison: Is my hon. Friend aware that the whole House endorses his tribute to Her Majesty's forces in Northern Ireland? As the Dublin Government are publicly committed to the defeat of terrorism, is it not time that co-operation between the British and Irish Armies reached the point that has been achieved between the Garda Siochana and the Royal Ulster Constabulary? What has been done to that end?

Mr. Hayhoe: Co-operation is being received from the security forces of the Republic. This has been mainly on the police net. My right hon. Friend the Secretary of State for Northern Irelan, recently visited Dublin. He had useful discussions with the Government of the Republic. We are considering what further steps could help to improve co-operation on security matters. I agree that this is a most important aspect of the situation.

Mr. Wm. Ross: Does the Minister agree that the standard Army tactics have not been widely successful in Northern Ireland? Therefore, is it not foolish to start using the UDR and training them to those tactics? Would it not be much wiser to treat the UDR as an anti-terrorist force and use it accordingly?

Mr. Hayhoe: I do not accept what the hon. Gentleman says about the failure of the tactics of the troops in Northern Ireland, who at present are there in a supporting role to the RUC.

Mr. Kilfedder: In view of the deteriorating situation in Northern Ireland, where the Provisional IRA is killing more and more members of the security forces and civilians, will the Minister make a massive increase in the number of SAS personnel serving on the border areas of the Province and also mobilise another full-time battalion of the Ulster Defence Regiment?

Mr. Hayhoe: If we can achieve increased recruiting to the UDR, that will be an important contribution. The deployment of units is a matter for the Commander-in-Chief, in consultation with the Secretary of State.

PRIME MINISTER (ENGAGEMENTS)

Mr. Colin Shepherd: asked the Prime Minister if she will list her official engagements for Tuesday 10 July.

The Prime Minister (Mrs. Margaret Thatcher): In addition to duties in this House I shall have meetings with ministerial colleagues and others. This evening I hope to have an Audience of Her Majesty The Queen. Later I shall leave for an official visit to Scotland.

Mr. Shepherd: In the course of her visit, will my right hon. Friend pause to consider some of the comments made on yesterday's proposals for consultation on improvements in trade union practice? Does she agree that the proposals reflect the wishes of the great majority of British people—and indeed the membership of the trade union movement—as was so clearly expressed by means of the ballot box? Will my right hon. Friend not be deflected from her path by the Pavlovian and wholly predictable response of Messrs. Len Murray and Moss Evans?

The Prime Minister: I agree wholeheartedly with my hon. Friend. The consultation document arises out of our undertakings in the manifesto. Those were discussed with the British people while the events of last winter were still fresh in their minds. It was largely as a result of those manifesto proposals that we gained more support than ever before from trade union members, and excellent support in this place.

Mr. Straw: Will the Prime Minister take some time this afternoon to consider the promises that her right hon. Friend the Minister of Agriculture, Fisheries and Food made on 22 June? He promised a 6p in the pound reduction in the price of butter. Is the Prime Minister aware that in none of the supermarkets that I have checked has a price reduction like this been made? Is that another broken Conservative promise? If not, will the right hon. Lady take time off this afternoon, come shopping with me and show me in which supermarkets this Conservative bargain may be purchased?

The Prime Minister: My right hon. Friend procured the biggest subsidy for butter that we have ever had, of 12p in the pound. I trust that that will work its way through to the shops to the benefit of the housewife.

Mr. Hordern: Does my right hon. Friend agree that, in view of the strength of sterling and the obvious overseas confidence in the policies of the Government, it is time to abolish exchange control regulations?

The Prime Minister: It is our intention progressively to dismantle exchange controls. It would be unwise to go too far too fast. A policy of one step at a time is very much better.

Mr. Newens: asked the Prime Minister if she will list her official engagements for Tuesday 10 July.

The Prime Minister: I refer the hon. Member to the reply which I have alreday given.

Mr. Newens: With the prospect of a sharp increase in mortgage rates due on Friday, will the Prime Minister reconsider her decision on the question of making money available to the building societies, as the previous Labour Government did in similar circumstances, to avert a further boost in the spiralling cost of living, which seems to be the stock-in-trade of her Government?

The Prime Minister: My views on the mortgage rates are well known. It would be far better to wait and see what decision is taken before the Government take any further decision.

Mr. Henderson: Is my right hon. Friend aware that she will be warmly welcomed when she visits Scotland? That welcome will be all the warmer it she is able to announce positive proposals for the implementation of the Hardman report, about which the Labour Government chilly shallied for five years.

The Prime Minister: I am very much looking forward to the visit to Scotland but, so that I shall not disappoint my hon. Friend, I point out that I have no major statements to make on the occasion of that visit.

Mr. Canavan: Has the Prime Minister found time today to read the reports of headmasters having to warn parents that they cannot guarantee adequate standards of education for their children, partly because her Government have chosen to divert £60 million from State schools to subsidise fee-paying selective schools? As those who will suffer most from such a policy will be deprived school children, will the Prime Minister admit that her attendance at the recent International Year of the Child celebrations was a piece of sheer hypocrisy?

The Prime Minister: As the hon. Member will be aware, the numbers and proportions of teachers compared with pupils will stay approximately the same in primary and secondary schools. That is the key to achieving good standards of education for children.

Mr. Michael Brown: Will my right hon. Friend take take time off today to read the report in the Sunday Express, which suggested that Her Majesty the Queen might have to receive Mr. Nkomo, who is a terrorist and murderer? Will my right hon. Friend do everything that she can to spare Her Majesty that embarrassment?

The Prime Minister: We have not been advised of any such meeting, nor has our high commission.

Mr. James Hamilton: asked the Prime Minister if she will list her engagements for Tuesday 10 July.

The Prime Minister: I refer the hon. Member to the reply I have already given.

Mr. Hamilton: Will the Prime Minister, if she has not already done so, read the report on the manpower survey

carried out in relation to 1,226 top industrialists in this country, which states categorically that because of the cuts in public expenditure, and because of the curtailment of recruitment in local authorities, there will be no new jobs? Will she note that the report further states that because of the cuts in consumer expenditure due to the increase in indirect taxation there will be mass redundancies? Bearing in mind the carping criticism which came from her and her right hon. and hon. Friends when we had a Labour Government, will she tell us how she intends to rectify the position?

The Prime Minister: One of the purposes of cuts in public expenditure—which has to be financed by taxation levied upon the hon. Gentleman's electorate, just as much as on anyone else's —is to get more money back into the private sector, so that we can get more jobs in the private sector. When that is done we tend to have more small businesses growing, and that is the true source of new employment.

Mr. Beith: Will the Prime Minister manage to call at Amble in my constituency, where her Government have axed a new naval dock project? Can this be the Government who promised to give our Forces the equipment that they needed? Has she any other plans to help this depressed area?

The Prime Minister: The hon. Gentleman knows that we have given priority to defence expenditure. As he is against public expenditure cuts, he must be in favour of more taxation on the British people.

Mr. Eldon Griffiths: Unless the Prime Minister has already done so, will she find time today to telephone Camp David and ask President Carter whether he will let her into two secrets? First, what is the deal that he has done with Saudi Arabia, and will it help? Secondly, has he now got an energy policy, and will it be sufficient to meet the targets that she helped him to achieve in Tokyo?

The prime Minister: I have the impression that they are already rather busy at Camp David, but I hope that the news from Saudi Arabia is correct. If we did our bit in Tokyo to try to depress demand, one of the reasons was to be


able to persuade Saudi Arabia to increase he supply of oil. If she has agreed to do so, it will be a tremendous help on price.

TUC

Mr. Cartwright: asked the Prime Minister when last she met the TUC.

The Prime Minister: I met the economic committee of the TUC on 25 June.

Mr. Cartwright: Since the Prime Minister apparently expects trade unions to go in for responsible pay bargaining, will she explain how, having destroyed any effective prices watchdog, she expects to persuade trade union negotiators that those who fix prices will be equally responsible?

The Prime Minister: I do not know whether one will be able to persuade them, but unless increased pay is matched by increased output the result will be either inflation or unemployment.

Mr. Lyell: When the Prime Minister next sees the TUC, will she ask that gentle body just what it is that some trade union leaders seem to fear when they require that individuals who work in firms with closed shops should not merely be deprived of their employment but should be deprived of it without unfair dismissal compensation?

The Prime Minister: I think that my hon. Friend is referring to some of the matters that are the subject of consultation with the trade unions at the moment. We believe firmly that people should not be able to be deprived of their jobs without compensation just because they refuse to belong to a trade union. We hope that that is a matter that we shall put right in legislation.

Mr. Meacher: In view of the virtual certainty of mortgage rate increases, will the right hon. Lady acknowledge to the TUC that the average worker will now make a considerable loss from the Budget, and not a net gain as she previously claimed, while she made a gain of about £43 a week? [HON. MEMBERS: "Cheap."] Will she explain why people on her level of salary need 40 times the extra incentive of the real wealth creators in society on the shop floor?

The Prime Minister: There were reliefs of direct tax all the way up, as the hon.

Gentleman knows. If I were to take the advice that has been tendered to me from the Opposition Benches today, all those tax reliefs would be cancelled in favour of increased public expenditure.
Before making any further comment on the mortgage rates, I propose to wait and see what happens at the meeting on Friday.

Mr. Gummer: In the light of the long and proud history of the trade union movement in protecting its members against the force of the rich and over-powerful, will my right hon. Friend do her best to draw to its attention the fact that the proposals in the paper that has been produced will do much to protect individual trade unionists from the over-mighty power of many senior and powerful trade unionists?

The Prime Minister: I will, indeed, convey the message so cogently put by my hon. Friend. Those proposals will also protect anyone who wishes to go about his lawful business unhindered.

Mr. Heffer: Will the right hon. Lady accept that, despite the soft-sell of the proposals of the Government in relation to trade union reform, these proposals are an echo of the Industrial Relations Act 1971, which Labour Members and the trade union movement were quite right to fight? Is it not clear that if she persists in this type of policy she will run into a great deal of difficulty, both in this House and in the country?

The Prime Minister: I do not accept what the hon. Gentleman says about any similarity between these proposals and the major Act that was introduced in 1971. Indeed, one has only to look at that Act to see that that was a very much larger measure than anything that we are introducing now. I believe that we have an absolute mandate for these proposals. They are what the people want. The events of last winter showed that they were needed. I hope that we shall have with us everyone who believes that great powers should be matched by great responsibilities.

Dr. Mawhinney: Would my right hon. Friend care to comment on the act of Labour councils—such as the one in my constituency—which have decided to stop selling council houses to many of the


tenants, many of whom are trade union members who would wish to buy them?

The Prime Minister: I can only condemn such action and hope that we shall have a Bill before the House soon that will give tenants the right to purchase council houses from the council.

HEATON MOOR

Mr. Andrew F. Bennett: asked the Prime Minister if she will visit Heaton Moor.

The Prime Minister: I have no plans to do so.

Mr. Bennett: Would the Prime Minister care to reconsider that reply? Many of my constituents in Heaton Moor, particularly those on low incomes and pensions, would very much like to impress on her the difficulty that they have in paying their water service charges, and would very much like the Government to consider extending the rate rebate system to cover water charges.

The Prime Minister: I am afraid that I shall have to disappoint the hon. Gentleman. At the moment I have no plans to do what he asks.

PRIME MINISTER (ENGAGEMENTS)

Mr. Ancram: Q6. Mr. Ancram asked the Prime Minister if she will list her official engagements for 10 July.

The Prime Minister: I refer my hon. Friend to the reply which I gave earlier.

Mr. Ancram: In view of the reaction of Opposition Members to the proposed trade union reforms published yesterday, will my right hon. Friend consider widening the basis of the consultation to include ordinary trade union members who, by and large, support these proposals?

The Prime Minister: I agree with my hon. Friend that these proposals have widespread support both outside and inside the trade union movement. I hope that the final consultation agreed with the leaders will recognise that fact.

Mr. James Callaghan: As the Prime Minister depends so much on her mandate in these matters, does she say that she has a mandate for the closure of old people's homes, for the reduction of train

ing for nurses, for a reduction in our educational standards and for the nonexistent butter subsidy?

The Prime Minister: I wish that this country created enough wealth to enable us to do more than we do at present, but, as the right hon. Gentleman knows, if we are to create more wealth people must have incentives. The legacy of his Government was to have the biggest borrowing on the next generation that has ever been known.

Mr. Callaghan: Is the Prime Minister aware that we are concerned not only about the production of wealth, with which we certainly agree, but about the distribution of that wealth? Does the right hon. Lady not appreciate that she gave no indication of, and was not elected on, any mandate to reduce public services?

The Prime Minister: We were elected on a mandate to try to reduce direct taxation and to increase the wealth of this nation. In that, the right hon. Gentleman had a singularly poor record.

MEMBERS' SPEECHES (OFFICIAL REPORT)

Mr. Speaker: I have a brief statement to make to the House.
At page 254 of Erskine May's " Parliamentary Practice " it is stated that:
It is not in order for a Member to obtain or quote during a current sitting the record made for the Official Report of the remarks of any other Member; the Speaker, however, is not bound by this rule.
This statement is supported by a ruling of my predecessor given on 25 April 1972.
On Thursday of last week an hon. Member was told by his colleagues that he had been criticised personally by another Member in a speech when he himself was out of the Chamber. He asked the Editor of Hansard to see the transcript of the speech concerned and the matter was referred to me. The situation was one which I am quite sure was not present in my predecessor's mind when he gave his ruling, which was made extempore.
When I considered the application from the hon. Member who was reported to have been attacked personally, it


seemed to me quite clear that he should be given access to the passage of Hansard concerned. The House will appreciate that, although attack may be perfectly fair, a Member may wish to reply to it during the remainder of the debate; but unless he is in a position to know exactly what was said he cannot make an adequate reply.
I propose, therefore, to follow the same practice in future. Applications to see passages in other Member's speeches where it is claimed that a personal attack has been made should be referred, in the first instance, to the Editor of the Official Report who will, in turn, refer them to me and access to the passage concerned in any other Member's speech will be given only on my authority. I do not, of course, propose to relax the ruling of my predecessors in any other respect on this issue.

Mr. Tapsell: On a point of order, Mr. Speaker. If the invariable convention of the House were followed whereby an hon. Member who intended to attack another right hon. or hon. Member gave him written warning, surely this new ruling would not be necessary?

Mr. Speaker: That is so, but from time to time hon. Members become excited and say things they did not mean to say before they entered the Chamber.

RHODESIA

The Lord Privy Seal (Sir Ian Gilmour): With your permission, Mr. Speaker, I shall make a statement about the Government's policy on Rhodesia. As the House is aware, it is the Government's objective to build on the substantial progress made in Rhodesia in order to bring that country to legal independence with wide international acceptance and to enable Rhodesia to live at peace with its neighbours.
My right hon. and noble Friend Lord Harlech agreed to carry out consultations with other Governments on the best way to achieve this objective. He has held discussions with the Presidents of Zambia, Tanzania, Botswana, Malawi and Angola; with the Mozambique Government, and with the Federal Military Government in Nigeria.He also met

representatives of the two wings of the Patriotic Front. My hon. Friend the Under-Secretary of State for Foreign and Commonwealth Affairs held discussions with the President of the Organisation of African Unity and with other African Governments. Lord Harlech explained the Government's view that there has been a fundamental change in Rhodesia. He found an encouraging recognition that major changes had taken place, though there was criticism of the constitution. It was put to him that a solution must stem from the British Government, as the legally responsible authority, and that an attempt should be made to bring the war to an end.
Lord Harlech saw Bishop Muzorewa and his senior colleagues in Salisbury last week. He explained the views expressed to him elsewhere in Africa and assured Bishop Muzorewa of our intention to work with him, as with others, for a settlement.
Later this week my right hon. Friend the Prime Minister and my right hon. and noble Friend the Foreign and Commonwealth Secretary will be continuing these discussions with Bishop Muzorewa in London.
We have also been in touch with our partners in Europe, with the United States Government, and with other Commonwealth and African Governments. The Commonwealth Heads of Government meeting in Lusaka in August will have an important place in our further consultations.
The Government intend to carry out their constitutional responsibility to bring Rhodesia to legal independence in accordance with the wishes of the people of that country. When our consultations have been completed, we shall make proposals designed to bring Rhodesia to legal independence on a basis which we believe should be acceptable to the international community.

Mr. Shore: I must first thank the Lord Privy Seal for fulfilling the pledge, given to my right hon. Friend the Leader of the Opposition by the Leader of the House last Thursday, that there would be a statement. I take this opportunity of asking the right hon. Gentleman to confirm that it will, indeed, be his practice in future to make statements to this


elected House when similar statements are made in the other place.
I believe that this is a thin statement. It certainly confirms my view that we need an early and, indeed, searching debate on the whole of Southern African policy. But I am sure that the House will at least welcome the range of contacts that Lord Harlech and Ministers have had, including those with Bishop Muzorewa, the front-line Presidents of the Patriotic Front and our partners in the Commonwealth, the EEC and the United States.
Does the Lord Privy Seal agree that the next step is to bring together all the parties involved in talks and, in the meantime, to seek to maintain and extend the temporary and perhaps fortuitous ceasefire? Will the Lord Privy Seal confirm that it is now the Government's view that very substantial changes are needed in the present Zimbabwe-Rhodesia constitution if there is to be any real prospect of achieving a lasting peace settlement? I hope very much that the right hon. Gentleman will put these points very forcefully to Bishop Muzorewa during his visit to London.
If those changes are agreed, does the Lord Privy Seal agree that there can be no question of lifting sanctions or of recognition of Rhodesia until the results of further negotiations and their acceptability are known?
Finally, will the right hon. Gentleman do his best, in the undoubtedly difficult and delicate task that lies ahead, to ensure that efforts to find a basis for further talks and reconciliation are not prejudiced by off-the-cuff remarks of colleagues, however eminent they may be?

Sir I. Gilmour: I can confirm that whenever a statement on foreign affairs is made in another place a statement will also be made in this House. But, of course, that does not apply when speeches are made in another place.
The right hon. Gentleman complained about the statement being thin. I am sorry about that, but he will appreciate that the reason for the statement was that he and his colleagues asked for it; it was not that I had anything particularly interesting to say.
I am pleased that the right hon. Gentleman appreciates the range of contacts

that we have. Of course, we all agree that the continuation of the ceasefire, such as it is, would be welcome. We all deplore the violence that is taking place.
With regard to constitutional change and other matters, as the right hon. Gentleman knows, we are consulting the bishop during his visit this week about ways of finding a solution that will involve wide international acceptance, but we have made no proposals at this stage.

Mr. Aitken: In these continuing consultations, will the Government express their view on the question whether all of the six principles, on which so much past discussion has been based, are now being honoured and upheld by the Muzorewa Government?

Sir I. Gilmour: It is perfectly clear that considerable progress has been made towards satisfying the principles accepted by successive British Governments. I think we all agree about that. However, the Government recognise that doubts remain in some quarters, and we are considering the best way to make progress in the light of Lord Harlech's discussions.

Mr. Grimond: As the statement and, indeed, answers to questions today make clear that the Government abide particularly by the fifth principle, that is to say, that any settlement must be acceptable to a substantial majority of Rhodesians, and as it appears that they are not so satisfied at this moment, can the right hon. Gentleman say what steps the Government intend to take to find out whether any settlement is acceptable to the Rhodesians?

Sir I. Gilmour: With respect, I do not think that the right hon. Gentleman has necessarily interpreted my previous answer correctly. As I said, our objective is to bring Rhodesia to legal independence with the widest possible international acceptance and recognition. We are considering the best way of doing that, but, as I said in my statement, our consultations have not yet concluded.

Mr. Brocklebank-Fowler: Will my right hon. Friend bear in mind that many Conservative Members think that the only way forward may be an interim period of internal self-government as a British colony prior to a free election


under universal suffrage leading to independence?

Sir I. Gilmour: My lion. Friend has already conveyed that view to me, and I am aware that it is shared by a number of other people. As I think I have told the House, at this stage we rule out no method of bringing Rhodesia back to legal independence.

Miss Joan Lestor: Bearing in mind that the legality of Southern Rhodesia rests not just on acceptance by the international community but also on acceptance by the majority of the people of Southern Rhodesia, and bearing in mind that the internal settlement was never put to the majority of the people of Southern Rhodesia but only to the whites—the blacks voted only on who should administer the settlement, not on whether they wanted it—can the right hon. Gentleman say what steps he is taking to find out whether this settlement is acceptable to the people of Rhodesia as a whole?

Sir I. Gilmour: The hon. Lady says that the blacks voted only on who should administer the settlement, but the fact is that 64 per cent. of them, under extremely adverse conditions, did vote. I should have thought that the hon. Lady would recognise that that was a remarkable happening, which changed the situation fundamentally. It was the finding of Lord Boyd and the others who reported that the fact that the blacks voted in such numbers indicated an acceptance of the conditions under which the election took place.

Mr. Amery: Does my right hon. Friend agree that the constitution in itself and the election which Lord Boyd found to be a test of acceptability of the constitution mean that, in effect, Zimbabwe-Rhodesia has returned to legality, even if only as a self-governing colony?

Sir I. Gilmour: No. Interesting as my right hon. Friend's constitutional ideas are, I do not think that that conclusion can be drawn. But, as I have made clear —in this respect I entirely agree with my right hon. Friend—that election was an extremely significant event.

Mr. Whitehead: I revert to the last question asked by my right hon. Friend the Member for Stepney and Poplar (Mr.

Shore), which was not answered. Since there have been consultations with the American Government, can the Lord Privy Seal tell the House what view the Americans have expressed as to the contrast between President Carter's statement about sanctions on 16 June and the off-the-cuff remarks of the Prime Minister in Japan?

Sir I. Gilmour: As the hon. Gentleman knows, we are working extremely closely with the American Government. It is true that there was a difference between what President Carter said in his judicial determination and what Lord Boyd said. On the other hand, as the hon. Gentleman will remember, the President said that considerable progress had been made in Rhodesia and that the election showed that.

Mr. Biggs-Davison: Since the authorities in Rhodesia—and now Zimbabwe-Rhodesia—have made a number of concessions to the other point of view since the original agreement between Dr. Kissinger and Mr. Smith for the establishment of multi-racial democracy, can my right hon. Friend say what concessions at any time have been made by the Patriotic Front?

Sir I. Gilmour: I agree entirely with what my hon. Friend says. A great many concessions have been made, but at the present time we are not particularly concerned with the concessions that the Patriotic Front is prepared to make. We are concerned with bringing Rhodesia back to legal independence.

Mr. Ennals: I want to pursue further the point made by my hon. Friend the Member for Derby, North (Mr. Whitehead) in relation to sanctions. Is not our own negotiating position greatly weakened by the statement made by the Prime Minister that this House of Commons would not approve the continuation of sanctions? What made her say that? Is she not aware that Labour Members would give full support to sanctions? What is the difficulty that she is now facing?

Sir I. Gilmour: I do not think that our negotiating position has been weakened in any way. My right hon. Friend made the position clear in her answer to the House on 3 July. The fact is that we are


anxious to proceed to bring Rhodesia to legal independence. To hang on until November, in the hope of preserving a negotiating weapon, is not the right way to produce a settlement.

Mr. Tapsell: Does my right hon. Friend agree that no settlement of the Rhodesian problem is likely to be successful unless the majority of the Matabele people can be brought to accept it?

Sir I. Gilmour: I agree with my hon. Friend that ultimately no solution of the Rhodesian problem will be successful unless the majority of the whole of Rhodesia, however it is divided, supports it. It is certainly our aim to achieve that.

Mr. Faulds: Will the right hon. Gentleman make the simple and straightforward statement that there will be neither recognition of the Smith-Muzorewa regime nor the lifting of sanctions until there have been constitutional changes in Southern Rhodesia and the dismissal of Smith?

Sir I. Gilmour: I said in my statement that our consultations are continuing and that the Commonwealth Heads of Government meeting in Lusaka will be an important part of those consultations. I do not think that the sort of partisan declarations for which the hon. Gentleman is asking in any way help negotiations.

Mr. Wall: Are the Government pressing for major changes in the entrenched clause of the constitution? If so, will my right hon. Friend bear in mind the danger that whites may leave Rhodesia and the security forces and the economy may collapse?

Sir I. Gilmour: We are well aware of what my hon. Friend said. We are not pressing, but we are having consultations with Bishop Muzorewa. We will be discussing with him later this week a way towards a solution that will gain the present regime in Rhodesia wide international acceptance. We have made no proposals at this stage.

Mr. James Johnson: Is the Lord Privy Seal able and willing to answer the question which I put to him a fortnight ago, which he so charmingly avoided? Is he aware of any leader in the old or new Commonwealth who is supporting the line taken by the Prime Minister? If that is not so, is the right hon. Lady the Prime

Minister prepared to go to Lusaka as a minority of one to lift sanctions and support the Muzorewa-Smith regime? Perhaps the right hon. Gentleman would care to turn and ask her?

Sir I. Gilmour: The hon. Gentleman will have heard me say that the meeting at Lusaka is an important stage in our consultations. He will also have heard me say last week that it is not for me, in this House, to state the view of any member of a Commonwealth Government.

Mr. Eldon Griffiths: Which of the doubts that my right hon. Friend suggests exist about the progress in Rhodesia repose in the Foreign Office? Is he concerned about the six principles or the election, and will he say exactly what doubts he has? Will he confirm that on the three main issues—the return to legality, the recognition, and the sanctions —while international opinion is essential, it is a decision for this House alone?

Sir I. Gilmour: My hon. Friend should know that there is no Foreign Office policy. There is a foreign policy of Her Majesty's Government. Any attempt to draw a distinction between the policy of the Foreign Office and anyone else is wrong. As my hon. Friend well knows, we cannot solve the Rhodesian problem on our own. Our concern must be to help Rhodesia attain independence in conditions that offer the people of that country the prospect of a more secure and stable future, which must involve a serious attempt to win the widest possible international acceptance.

Mr. Dalyell: Are the Government aware of the deep concern of certain major companies in Britain that they have been unable to tender for major export contracts in Nigeria? Is the right hon. Gentleman also aware that the Nigerians are unlikely to allow tenders until the Rhodesian situation is clarified? What guidelines are the Government giving to such companies?

Sir I. Gilmour: I cannot answer the second part of the hon. Gentleman's question because it is beyond my competence, but I am well aware of certain difficulties with the Nigerian Government, not entirely because of the Rhodesian question. We are in consultation with the


Nigerian Government about the matter, and Lord Harlech went there in an attempt to ease the situation.

Mr. Maurice Macmillan: Will my right hon. Friend remember that the capacity of Commonwealth countries, including Nigeria, to damage our economy depends on the willingness of our allies and partners in Europe to supplant our trade there? Will he bear that in mind when talking to our Common Market colleagues?

Sir I. Gilmour: I shall certainly bear in mind the comments of my right hon. Friend.

Mr. Newens: Did any of the Governments with whom Lord Harlech had discussions express a vestige of support for the idea of lifting sanctions or recognising the Muzorewa Government?

Sir I. Gilmour: The hon. Gentleman must have heard what I said in my statement, and I shall not weary the House by repeating it. There is general although not universal recognition of the fact that considerable changes have taken place in Rhodesia. I am amazed that so many Labour Members appear not to appreciate that. There is a black majority Government and Parliament instead of a Parliament and Government elected by 3 per cent of the population. By any standards that is a major change, and it is on that change that we are seeking to build.

Mr. Hastings: Whatever the consultations may or may not achieve, will my right hon. Friend agree that the first priority must remain the wishes of the Rhodesian people of all races as expressed at the ballot box? They have accepted the situation. If we do not stand for that, what do we stand for? Why should outside opinion seek to change that situation?

Sir I. Gilmour: We stand for the victory of the ballot box over the bullet. That is undoubtedly our policy. As I have said, it will not be in the interests of this country or Rhodesia for us to act entirely on our own. It is in Rhodesia's interests for security, stability and peace to return, and that demands a large degree of international acceptance.

Mr. Hooley: Is the Lord Privy Seal aware that the sanctions order passed by

this House is still valid? What action is the Government taking to interdict the flow of oil and arms that is enabling the illegal regime to make murderous attacks on its neighbours?

Sir I. Gilmour: It is widely accepted in this House that the observance of sanctions by this country has been far stricter than by almost any other country, including those on the other side of the Iron Curtain.

Mr. Emery: Will my right hon Friend realise that, whilst it is the unanimous wish of Conservative Members to see sanctions lifted and recognition given, a number of hon. Members believe that if that recognition were to be given solely by ourselves and condemned by the rest of black Africa, it could be, in the long term, harmful not only to Rhodesian but to British people living there? If, therefore, the Government need some months to try to bring world opinion round to support our policy, a large number of hon. Members would support that.

Sir I. Gilmour: On my hon. Friend's first point, it is implicit in Government policy that we need wide international acceptance and recognition in what we have been doing. We agree that unilateral action by Britain would not be in the interests of this country or Rhodesia.

Mr. Robert Hughes: Will the right hon. Gentleman assure the House that if, after the widest consultation, it is clear that the conditions do not exist for a return to legality and that there is no acceptance within the Commonwealth or the United Nations that progress has been made, in November the Government will lay the sanctions order for decision in this House?

Sir I. Gilmour: I should not dream of giving an assurance based on a lot of hypotheses that I do not accept.

Mr. Higgins: Does my right hon. Friend accept that the constitution in Rhodesia cannot form the basis of a permanent settlement, since it contains a number of highly discriminatory elements? Will he do everything possible to ensure that consultations are carried out to produce a constitution that is acceptable?

Sir I. Gilmour: It is possible to make criticisms of the Rhodesian constitution, just as it is of the British or American constitution. These matters have been discussed and will continue to be discussed with African leaders, and in due course we shall make proposals.

Mr. James Callaghan: Whilst we acknowledge the attitude of the Lord Privy Seal this afternoon, we must say to him that it is not criticisms that we make of the constitution. There are fundamental defects that should be corrected, and we hope and trust that the Government will pursue that.
Reverting to what my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) said, we need a debate at the earliest possible opportunity before we break up in order further to elucidate the Government's attitude on that issue. Even though the right hon. Gentleman thought that he had nothing useful to say this afternoon, the past 20 minutes have been educational for everyone. They have shown the Prime Minister that if only she stands up she will get a lot more support from her side of the House than perhaps she thought.

Sir I. Gilmour: With respect to the Leader of the Opposition, there is not a great deal of difference between criticism of the constitution and defects in the constitution. All constituents can be criticised, and have defects. I am grateful to the right hon. Gentleman for suggesting that I have not entirely been wasting the time of the House.

Several Hon. Members: Several Hon. Members rose—

Mr. Speaker: Order. I propose to call one more hon. Member from either side.

Mr. William Clark: Does my right hon. Friend agree that if the Muzorewa Government were to fall it would be a victory for Communism and a blow for the West?

Sir. I. Gilmour: I am sorry that I did not answer the Leader of the Opposition's question about a debate. A debate has

been agreed to. I agree entirely with my hon. Friend the Member for Croydon, South (Mr. Clark). Of course it would be a very sad day if the bishop's Government fell but, touching wood, I see no prospect of that happening.

Mr. Flannery: Does the Lord Privy Seal agree that his statement has been received with grave disquiet from Conservative Members and that may have been unexpected? Is he intent on giving the stamp of legality to a regime in which 3 per cent.—the white minority—have 28 per cent. of the seats and an inbuilt veto? Does he not realise that the whole of black Africa is against this, and that the Rev. Ndabaningi Sithole has opted out and claimed that the election was not a proper one?

Sir I. Gilmour: I agree that there are criticisms of defects in the Rhodesian constitution, but I wish that the hon. Member would look at it the other way. The fact is that this situation has changed profoundly. Not so long ago 3 per cent. of the population governed the whole of Rhodesia, and now that position has been fundamentally transformed. There is a black Prime Minister, a largely black Government, and a largely black Parliament. Surely that makes a great difference.

STATUTORY INSTRUMENTS, &c.

Mr. Speaker: With the leave of the House I shall put together the Questions on the three Motions relating to statutory instruments.

Ordered,
That the draft European Communities (Definition of Treaties) (ECSC Decision of 9th April 1979 on Supplementary Revenues) Order 1979 be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft International Oil Pollution Compensation Fund (Immunities and Privileges) Order 1979 be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft Hill Livestock (Compensatory Allowances) (Amendment) Regulations 1979 be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. St. John Stevas.]

WATER SERVICES CHARGES (REBATES)

4.3 p.m.

Mr. Andrew F. Bennett: I beg to move,
That leave be given to bring in a Bill to provide for rebates on water services charges for pensioners and low income families.
I am delighted to have this opportunity to try to introduce once again a Water Services Charges (Rebates) Bill. I have tried to get such a Bill through in the last two parliamentary Sessions, but have not succeeded. I hope that this time I shall be more successful.
The Bill is designed to meet the problems of water service charges—better known as water rates—which are unfair and cause considerable hardship to those on low incomes. The charges now cover the supply of water and the removal of sewage. They are unfair because they take no account of the water used or the amount of sewage that must be disposed of from each house.
Take the example of two identical houses, one occupied by an elderly lady living on her own and one occupied by a family of five. The elderly lady will use very little water and create only a little sewage. Next door, in an identical house, a family of five consumes vast amounts of water in baths, automatic washing machines, washing up, and washing the car. Five people also produce a large amount of sewage. Both families pay the same water services charge, which is based on the rateable value of the property. This is very unfair.
The water services charge takes no account of a person's ability to pay. A constituent of mine has a general rate bill of £132, but because of the rebate system he pays only £16 a year. On the other hand, his water services charge bill is £32 a year and he has to pay the whole amount because no account is taken of his ability to pay. Therefore, he ends up paying twice as much for his water services charges as he does for the whole of his rates. That is ridiculous.
Another reason why the charges are unfair is that the water authorities, in spite of some improvements, are still not making it possible for people to pay in install-

ments. This causes considerable hardship. For instance, those people who are on supplementary benefits receive from the Supplementary Benefits Commission a small weekly amount to pay for their water services charges. However, they have to save that money up to pay out—usually in two instalments—to the water authority. Also, the water authorities demand payments early in the year, long before the person has received his money from the Supplementary Benefits Commission. Therefore, on those grounds alone, the present charging system is causing hardship and difficulty.
In the 1960s the case was strongly developed for general rate rebates. When these were introduced, they did a little to reduce the unfairness of the general rating system. From 1964 to 1974 this applied to sewerage charges, which were included in the general rates. Then, as a result of the reorganisation of the water undertakings carried out by the last Conservative Government, people lost the rebate on the sewerage system and this once again caused hardship. Now that the water rates have increased—and in the last 10 years they have grown much faster than the general rate of inflation—and have had added to them the sewerage charges, they have become a considerable burden. Many families are now paying £1 a week to cover water services charges. It is high time that these charges were subject to some form of rebate system that would take account of a family's ability to pay.
The water authorities have always claimed that they should be treated like the gas and electricity boards. However, the problem is that, unlike the gas and electricity boards, the water authorities have no way of measuring the amount of water supplied. Recently, there was a suggestion from a Conservative Member that water should be metered, but there have been no suggestions that sewage disposal should be metered. Therefore, we cannot really consider that the water undertakings are in any way like the gas and electricity boards.
Although it is beyond the scope of my Bill, I feel very strongly that the water authorities should be returned to local democratic control. In the meantime, I feel that we should now introduce a system by which the water services


charges are eligible for rebate, like the general rates.
Question put and agreed to.
Bill ordered to be brought in by Mr. Andrew F. Bennett, Mr. Bob Cryer, Mrs. Ann Taylor, Mr. Jack Straw, Mr. J. W. Rooker, Mr. Stan Thorne and Mr. Ken Eastham.

WATER SERVICE CHARGES (REBATES)

Mr. Andrew F. Bennett accordingly presented a Bill to provide for rebates on water services charges for pensioners and low income families; And the same was read the First time; and ordered to be read a Second time upon Friday 20 July and to be printed. [Bill 39.]

Clause 17

INCREASE OF RATE

4.9 p.m.

Mr. T. H. H. Skeet: I beg to move amendment No. 60, in page 7 line 33, leave out ' 60 ' and insert 56
It would appear a little extraordinary that I should raise a topic such as this at the beginning of the day because it will not attract the attention of many people, due to its complexity. The amendment proposes to reduce the new rate of 60 per cent. for petroleum revenue tax to 56 per cent. When the Oil Taxation Act 1975 was going through the House the then Paymaster General, Mr. Edmund Dell, who has since left us, indicated that he had been at some pains to assure the industry that this tax was intended to be stable and not a short-term regulator. It was fairly important that this should have been indicated at the time, and this is binding on the Opposition. My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin), who was the Opposition spokesman at the time, said:
 I hope that …the industry will take the joint assurance of the right hon. Gentleman and myself that there is no intention here that this should be anything other than a stable tax, which will not be used for demand management purposes nor as a short-term regulator."—[Official Report, Standing Committee D, 6 February 1975; c. 729.]
I come to the crux of the matter. This tax was levied for the first time in March 1975, and I must point out that we are now in 1979 facing sweeping changes provided in the Finance Bill. The Paymaster General said in February 1975:
 a change in the price of oil relative to price levels generally could have a profound effect on profitability. I therefore made it clear on Second Reading, and I take this opportunity to reaffirm, that the Government will stand ready to review and adjust the incidence of PRT in the event of a sustained and significant change in the price of oil in real terms."—[Official Report, 25 February 1975; Vol. 887. c. 291.]
That is a limiting factor. When Labour proffered the suggestion that PRT


should rise to 60 per cent, they broke the assurance given to the House. Between January 1978 and March 1979 there was no increase in the price of oil in real terms. Indeed, the trend went entirely the other way. I emphasise that there was an 18 per cent. drop in the real price of oil between the time when PRT was introduced in February 1975 and the time when the new rate of PRT was announced in August 1978. Her Majesty's Government at the time broke the pledge which they gave to the House and to the Committee that this tax would not be altered unless there was a change in the real price of oil.
I am not arguing that this tax should not rise. I bear in mind the fact that OPEC has secured a considerable increase in oil prices. But we have to examine the matter statistically. If we take the time when PRT was introduced in February 1975, we must take into account three factors: first, the changes in OPEC prices—and the top price that would be acceptable in respect of North Sea crudes would be $23·50 in line with North African crudes—secondly, the dollar-pound exchange rate, and, thirdly, the price index.
If we take February 1975 as the base and July 1979 as the current figure, we see that the price has risen from £4·94 per barrel to £5·91. The change in the base is 19·7 per cent. This would justify a PRT rate of 54 per cent., not 60 per cent. I believe that, for the reasons I have stated, two points higher might be the relevant figure to pay.

Mr. Dick Douglas: Will the hon. Gentleman concede that there are other factors to consider, such as the amount of oil going on to the spot market and the spot market price?

Mr. Skeet: The oil markets in Rotterdam, Genoa and elsewhere trade in margins and deal with only small quantities. The price is anything between $30 and $35 per barrel, but that does not apply to term contracts. We know that OPEC has agreed that the top price will be no higher than $23·50 per barrel. Therefore, surely the spot market should not be regarded as the appropriate indicator.
The Government should not have adopted the figure of 60 per cent. laid

down by the Labour Government. They are entitled to take account of other factors, but they should have worked out arithmetically by what margin the real oil price had altered over that period. This is not a concluding factor because the position varies considerably. There was a long period, between January 1978 and March 1979, in which the real crude oil price fell.
There is an interesting passage on this subject in The Economist of 7 July this year which reads:
 they need to learn "—
referring to the participants in the Tokyo summit—
 how to take advantage of the modest drop in the real price of oil which stagflationary recession might bring: say, only a 5 per cent. rise in crude oil prices next year but a 10 to 15 per cent. general price inflation in most other things.
Although the Government may argue that a rise is justified because of a real rise in the price of crude oil, it must be said that next year the price may fall drastically. If that happens, the proposed tax will be extremely onerous.
I wish now to move to the supply argument. I approach the matter in logical sequence. Historically, exploration success in the North Sea peaked between 1973 and 1975 and thereafter declined. The total productive capacity of 25 fields is 2·5 million barrels per day, but this is likely to decline to 400,000 barrels a day by 1995.
The lead time required for exploration to mid-peak production is assessed at between seven and a half to nine and a half years, which gives the time frame within which replacement oil must be brought forward. New oil required is assessed at about 2 million barrels a day and, measured back from the mid-1990s, this requires to be discovered between 1979 and 1987. As there is a major shift towards the discovery of smaller fields as opposed to the prolific fields, such as the Forties field—the probability of finding a field with recoverable reserves of 300 million barrels is about one in a hundred—it is essential to have a fiscal regime to provide an incentive to ensure their discovery and development.
I am uninfluenced by the fact that recently Phillips Petroleum is stated to have made an important discovery in


block 16/17 in the Tiffany field. It is thought that this field, together with Thelma and Tony, will produce recoverable reserves in aggregate of no more than 500 million barrels. But what concerns me at this stage is the fact that exploration drilling has been dropping away seriously. This is noted in the report of Wood Mackenzie as late as 22 June 1979:
 With six rigs in the UK sector still employed on development work, the number of UK exploration and appraisal wells drilling has remained at a depressed level.
The report indicates that the result of what occurred last year, when the announcement was made by the Labour Government that PRT would be increased and that other rights would be taken away, will not help the petroleum industry.
I congratulate the Department of Energy on bringing on the development of oil and gas resources in 1979. There were 37 exploration wells and 25 appraisal wells drilled in 1978. That compares with 67 exploration wells and 38 appraisal wells drilled in 1977. How is the decline to be remedied? Exploration is essential to avoid a significant shortfall in production in the late 1980s and the early 1990s so that the United Kingdom will remain self-sufficient in oil. The fiscal system which drains the funds which would otherwise be available for future drilling is short-sighted. Further, future discoveries have to be funded out of past successes and not out of abortive drilling. It is notorious that future costs will continue to rise because of three factors—increased water depth, lower productivity per well, and the increased technology which will be required. All three will demand greatly increased funds in the future.
It may be necessary to drill deeper in order to locate oil beneath existing finds. It should be noted that smaller fields are more likely to be developed in the future and, whoever conducts the search for oil, the contribution of independent enterprise should not be overlooked. According to the American Association of Petroleum Geologists, independent producers account for the majority of wild-cats that are drilled in the United States and they have discovered about 54 per cent. of the current United States oil and natural gas reserves.
The proposed taxation at 60 per cent. will affect the marginal fields much more seriously than any others. The new rate will prove relatively onerous to the marginal fields because of the broadening of the tapering tranche, together with other proposals which will accelerate the time when PRT will be paid. Compared with the current rate of 45 per cent., the increase will be 20 per cent. for Brent, Forties, Ninian and Piper, but it will be much greater for the smaller fields. It will be 142 per cent. for Murchison and about the same for the United Kingdom sector of Stratfjord. That means a rate of return in real terms on the major fields referred to of 23·7 per cent. compared with 13·3 per cent. for Murchison and Stratfjord (UK). That was the view of Wood Mackenzie in December 1978.
It is intolerable that under the tax regime which we have in the United Kingdom the more prolific and profitable fields get away more lightly and the smaller marginal fields get clobbered hard by petroleum revenue tax and all the other taxes which are associated with it. The reason for the difficulties of the marginal fields is that when a field's adjusted profit is more than 30 per cent. of investment —above the safeguard—the PRT within the tapering tranche is 80 per cent. of the excess. At a 45 per cent. PRT rate that is a considerable band, but at the higher rate of 60 per cent., together with the halving of the oil allowance, the tapering tranche is widened threefold to include all the marginal fields. Surely that cannot be allowed to continue.
The top rate on a big field falling outside the tapering tranche would be 60 per cent. under the present proposals. The Government will take in royalties 84 per cent. of each price increase from the high-profit fields and 92 per cent. from the low-profit fields. That is ridiculous, and I hope that the Financial Secretary will look into the matter at the earliest opportunity.
One recommendation is to modify the tapering tranche to produce a more progressive system of tax that is analogous to income tax. Thus, by adjusting the tapering provisions so that the rate that applies to annual taxable income in the range of 30 per cent. to 60 per cent. of investment is 45 per cent. the 80 per cent. rate applies to all incomes above 60 per cent. of investment until the income exceeds that


in the tapering tranche. That would make sense. For example, with a prolific field, under ordinary income tax it would pay at the higher rate and therefore the yield would be higher, but with a marginal field with lower profitability tax would be paid not at the higher rate but at the proportionately lower rate.
The reduction of uplift from 75 per cent. to 35 per cent. discriminates against the fields that are now being developed —Beatrice, Buchan, Fulmar, Murchison (UK), Strafford (UK) and Tartan. Those fields that are already operating, Brent and Forties, have had the benefit of uplift at current rates. The only benefit in the Finance Bill is that the date for contracts has been advanced from 2 August 1978 to 1 January 1979.
The oil allowance was intended to benefit the development of the marginal fields, but, like other phenomena in politics, it has turned out to be the other way around—it is to their debit. The large fields have been able to take advantage of the allowance because of their longer life of between 15 to 20 years. The smaller fields could only utilise the allowance for two to three years of their life, although the facility is available for a 10-year term. The only consolation in the provisions is that the safeguard mechanism has been retained. However, that could be modified.
It is essential to get people back to the North Sea, working and drilling for new oil for the 1990s. It will be appreciated that if Wood Mackenzie is prepared to say that there has been a fall-off in drilling the country is in a serious position. The Government should confine themselves to lifting the rate of PRT and they should leave untouched the provisions that relate to uplift in the oil allowance. There will be ample time to consider those provisions in the Finance Bill of 1980 because few companies are paying petroleum revenue tax now.
The PRT should be adapted to become a progressive tax analogous to income tax by altering the application of the tapering tranche. The capital base upon which safeguard provisions under section 9 are calculated should be indexed. That would help to overcome the effects of fiscal drag which may become severe later in the fields' lives. The faster oil prices rise in money terms, the less valuable is

the safeguard mechanism under the 1975 Act for protecting marginal developments against high taxation.

4.30 p.m.

I have two further recommendations to make. I hope that I have not wearied the Committee in expressing some of the important provisions. The Treasury could with advantage provide a formula under which no royalties would be payable on fields yielding between 35,000 and 70,000 barrels a day—that is, 100 million barrels of recoverable reserves—from the marginal fields compared with 125,000 to 150,000 barrels a day from the larger areas. That would require a simple modification of section 41(3) of the 1975 Act.

My final recommendation is that the Minister should consider the application of the ring fence. It is working satisfactorily under corporation tax. It is possible for one oil company to use the profits from one field for the development of another marginal field—for example, the Magnus field. If the ring fence were not extended to cover the entire North Sea, it could be widened a little to incorporate some of the marginal fields which could be developed in conjunction with some of the more profitable fields.

It is all very well to accept a rate of 60 per cent., which may be tolerable now. Next year, after a severe recession, the real price of oil may decline. The tax would then be wrong.

The Financial Secretary and the Secretary of State for Energy must consider whether they will be able to produce in the  1980s and early 1990s the barrel-age per day to make this country self-sufficient in oil. Alternatively, will production have declined so much because of the absence of exploration that we shall have to import more and more? It is no good saying that we can rely upon coal. It will not fill the gap. We must have oil.

The long-term problems have been caused by five or six years of disastrous Labour Government. They did not face the problems.

Mr. Denzil Davies: We have just heard a typical pro-oil industry lobby speech. The hon. Member for Bedford (Mr. Skeet) was well briefed, and he knows his subject well. It was the usual


type of speech from a Tory. Government supporters seem to be more keen to espouse the oil companies' case than to consider the matter objectively in the interests of the British taxpayer and the country.

Mr. Skeet: I am arguing not for the big oil companies but for the small companies. The rate of return for oil companies is between 9 per cent. and 15 per cent., which is below the average industrial level.

Mr. Davies: The hon. Gentleman may weep tears for the oil companies, but they do not seem to have done too badly in the last 25 years. It looks as if they will do even better in the next 25 years. I am not too worried about the oil companies.
I do not support the amendment, but this is an opportunity to debate the subject and to express ideas that we might express on the debate on the clause as a whole.
The clause puts into effect the principle which my right hon. Friend the Member for Heywood and Royton (Mr. Barnett) announced to the House last August. We accept and welcome the clause.
A long time has elapsed since August. At that time Tory spokesmen niggled about, if they did not oppose the ideas in the statement. They did not think that it would assist the revenue of the United Kingdom. The same attempts were then made to put forward the oil industry case as were made during the passage of the Oil Taxation Bill. The Opposition's speeches then were made on behalf of the oil companies.
At that time nobody in government had any experience of introducing oil taxation legislation. It was a difficult period. Little help came from the Conservative Opposition. They were more concerned to espouse the interests of the oil lobby.
The decision that was taken by the last Government in August was against a background of a price for North Sea oil of about $14 a barrel. There had been a period of stability. We came to the conclusion that a 60 per cent. rate was correct at that time.
The price of North Sea oil could increase even further. By the autumn it

could reach $23 a barrel. Events have overtaken the Government. The principle in the clause was right last August, but it is not right now. It is not right against the background of the OPEC price increases and the knowledge that there will be an increase in North Sea oil prices.
There may be a period of recession and the price may stabilise, but in the next 25 years there will be an escalation in the price of oil, with short periods of stability. In those circumstances, 60 per cent. is not adequate.

Mr. Skeet: The right hon. Gentleman did not appreciate what I was saying. I said that the PRT rate should be 54 per cent. I was working on North Sea oil at $23·50 a barrel, a dollar exchange rate of $2·20, a North Sea crude oil price of £10·68 a barrel, the wholesale price index having moved from 94·4 to 170·5, which brings the real crude oil price to £5·91 per barrel. That is an increase of 19·7 per cent., which justifies the rate that I suggest.
Is the right hon. Gentleman suggesting that we should levy a 60 per cent. rate and even more on an expectation that may never materialise? The right hon. Gentleman should consider the matter again.

Mr. Davies: I accept that with a decline in the value of the dollar the oil companies may have to adjust the price. I do not accept the hon. Gentleman's figures. I prefer to take my information from the Sunday Telegraph rather than from the oil companies. The Sunday Telegraph may be a little more objective. An interesting article by W. I. Carr was headed: " Oil companies OPEC bonanza ". This article appeared in a sensible financial column and was written by a respected journalist. His figures are likely to be more objective than the figures quoted by the hon. Member for Bedford using a brief from the oil companies.
A table gives an indication of the profits of the largest oil companies. The article claims that Shell is to benefit by £700 million merely from the latest OPEC price rise. BP is to benefit by £440 million. The Government apparently want to sell the majority control in BP when its profits are likely to rise


remarkably over the next year as a result of the increased price of oil. That seems extremely foolish and dangerous.

Mr. Douglas Jay: Is it not also the case that when there are OPEC price rises, the oil companies immediately raise the selling price of stocks that they bought at the lower price? Huge stock profits are made, as has been admitted by the chairmen of some of the major oil companies—I do not think that the hon. Member for Bedford (Mr. Skeet) will contradict me—which run to enormous figures. If it is necessary to make immediate price increases and reap huge stock profits, is that not a case for some form of additional taxation rather than for a reduction?

Mr. Davies: My right hon. Friend makes a good point. Being rather simple minded on these matters, I have never understood how profits can rise when costs increase. One sees that happening not only in the oil industry, but in other cases. Costs rise, but why should profits rise so dramatically as a result? The profits should surely not rise any more than enough to absorb the rise in costs. BP and Shell will be making enormous profits over the next 18 months to two years as a result of the OPEC " bonanza ". Both those companies, especially BP, are heavily involved in the North Sea. I do not see how they can argue for a cut from 60 per cent. I argue that the rate is too low in present circumstances, because it takes no account of the latest oil price rise.
The Conservatives opposed PRT when it was introduced. They were not enamoured of the idea, they did not like it, and they have constantly niggled away at it ever since. We understand that the Government are looking at oil taxation again. I hope that they will look at the clause and at the rate of tax in the light of what has happened and what is likely to happen over the next few years.
If nothing is done and enormous profits are made, cries and clamour will come for some sort of excess profits tax on the oil companies to take away the profits that they are making, not through any hard work, initiative or industry, but because a cartel in the Middle East

decides to raise oil prices and the oil companies reap the benefit.

Mr. Nick Budgen: Does the right hon. Gentleman agree that the consequence of high profits will be, if anything, excessive investment in marginal fields? That would lead to a great increase in production, and that could lead to a break in the cartel with more and more energy coming on to the market.

4.45 p.m.

Mr. Davies: I do not know about that. It depends on world demand over the next 25 years. I do not see demand falling much unless somebody invents a new sort of engine that uses something other than oil. Demand will probably outstrip supplies for a long time. One cannot answer that sort of question when one just does not know. I guess that it would be the other way around.

Mr. Anthony Nelson: The right hon. Gentleman seems to be indicating that the Labour Party feels that the 60 per cent. rate in the Bill is too low in present circumstances. Will he say what rate he thinks it should be, and why no amendment has been tabled providing for a higher rate?

Mr. Davies: The hon. Gentleman has been long enough in the House, and has served on one or two Finance Bill Committees, to know that the Opposition cannot table amendments to increase taxation. An amendment was tabled by the Scottish National Party, but it was not selected.
We will consider that complicated and difficult matter—[Interruption.] It is all very well for the hon. Member for Bedford to laugh when he has the oil companies resources behind him. They provide him with a brief, and that brief is always for a reduction in the rate of tax. We will submit our proposals in due course. The Government should look at the matter again—not between now and Report—because we shall see massive profits from the oil companies over the next two years.
It may be that the PRT system, which worked well initially, is not the right instrument to deal with the problem over the next 25 years. It was the first shot that we in Britain had had at oil taxation, and the Labour Government had no help


from anyone to put it through. The oil companies tried their best to create as many loopholes as they could, with the help of many Conservative Members, against a difficult background and in a difficult situation. Therefore, we may have to look at the problems again.
I quote from the splendid article in the Sunday Telegraph:
 But much will depend on what happens in the Middle East and on the dollar-sterling exchange rate. The only sure thing is that the oil companies are in for more flak, as each quarter churns out more record figures.
When the record figures are published I hope that the Government will think about the tax and the rate again, because it is our opinion that 60 per cent. is too low.

Mr. Geoffrey Dodsworth: We should regard the debate as an extension of the debate that took place on Friday last week on the motion entitled " The Challenge of North Sea oil ", introduced by my hon. Friend the Member for Gosport (Mr. Viggers), seeking on a wider basis to examine the needs of the situation. We are all grateful to my hon. Friend the Member for Bedford (Mr. Skeet) for submitting his reasons for a reduction in the tax.
We are still in very early days and treading new ground on the effect on the economy and the effect on Britain of the development of North Sea oil. The PRT is only part of that development and only part of the issue.
The yields from the tax are only just beginning. These are early days and we are looking to substantial yields from that sort of taxation in the future. The yield from PRT in 1978–79 was £180 million, and we are looking for the year 1983–84 to a yield of more than £3 billion. We are at the very beginning of the effect of the tax.
It is perhaps helpful to look at some of the comments made in the debate today and in the debate on Friday to see how we should proceed. There was an interesting comment from the right hon. Member for Down, South (Mr. Powell) that the effect of additional taxes on oil supply was not the traditional or desired effect of suppressing demand. It did not mean that extra oil would be produced because the price was raised. There would not be additional production be-

cause there is a limitation on supply. The right hon. Member for Llanelli (Mr. Davies) takes the view that we shall have an ever increasing demand, but it seems that we are seeing a restriction in supplies. We are seeing a restriction by physical means by those who control the resources throughout the world, if nothing more than that. We are certainly seeing a diverting of those resources for political purposes. That has for us a substantial economic effect.
We add to that the taxation procedures that I understand were felt desirable at the time. Here was a resource which many felt would meet the needs of the nation, and there were those, who are still represented in the House, who felt that it represented the needs of a particular part of the nation and it was their resource. I do not share that view, but it is true that we all have an inbuilt interest in seeing how this resource is developed.
In Friday's debate many hon. Members expressed the concern that the resource might be developed purely as an adjunct to the Treasury. It may be an attractive source of revenue and of funding for developments, and there may be long discussions about the sort of social advantages that may be obtained from it. However I believe that we must think of it in terms of being an energy bank.
Many of my hon. Friends expressed the view on Friday that the oil should be husbanded purely in energy terms, and that the marginal fields should be developed as effectively as possible as a positive act of Government policy. The observations of my hon. Friends about the marginal fields were highly relevant. The more one takes in tax from a company, the more one depletes the finance available to carry out the development of marginal fields. It is not good enough to say that because the Government can tap this source of revenue they are better able to make judgments about development than the oil companies.
I do not hold a brief for oil companies, but I certainly have a view about the development of the nation's resources. The track record of the oil companies is remarkably good. We should have been in a pretty sorry state if they had not been prepared to invest substantial resources in the North Sea. That investment


has provided a positive benefit for the nation. The argument that we should simply mulct taxes so as to benefit socially desirable causes is simply not viable. The companies engaged in the development of the resources should be able to retain profits to use in their development activities. That is in the interests both of the nation and of the companies. It might be said that the interests of those companies is their perpetuation, and that the route of their perpetuation is via their profitability. If that is done on the basis of self-motivation, that will lead to far more efficient and effective development.
If the Government are to benefit from the substantial sums that will accrue over the next few years—and here, like many other hon. Members, I draw on Mr. Brittan's article—we should consider how the money can best be used. Mr. Brittan tells us that the figures are likely to rise from £1·6 billion in 1979–80 to £6 billion in 1983–84.
I offer two slightly divergent ideas on how that finance should be employed. During the general election campaign I conducted a survey of all my constituents. I commend that as an activity. It was a unique opportunity to address specific questions to my 76,000 constituents. One of the matters I questioned them on was North Sea oil. I asked how they wished the oil to be utilised and how they wanted the proceeds from it to be used. About 375 people replied, and of those 70 sent very detailed letters explaining how the resources should be developed. The vast majority of the electors who replied wished the resources of the North Sea to be used to develop further energy resources. That was the sum of their views—there were, of course, many diverging views among them. That is a useful expression of public opinion. It can be related back to the activities of the oil companies as being a way of ensuring that the resources are used in that way.
Other people went further, saying that they wanted the money used to develop our industry. They felt that if the resources were finite the money should be invested in industry but they did not wish to see the money used to " prop up lame ducks ". I quote those words from some of the people who wrote to me.
These resources give the nation a great opportunity, and that leads me to my second, slightly divergent view on this matter. We have an opportunity here to relate the activities of the OPEC countries to our own trading activities. The OPEC countries want the resources that arise from their oil used to assist developing nations. If that is a praiseworthy aim, and I believe that it serves a number of purposes and causes, we, too, might take such a view.
If we want our industrial activity to be developed and our trading activities promoted, we should consider whether some of these resurces should be directed to overseas aid. This country has had excellent experience of providing tied aid. We have been able to offer aid in ways that promoted the commercial and industrial activity of our own people, providing jobs, opportunities, profits and prosperity for the nation. We have a good record of doing that in a benevolent way that is advantageous for some developing countries.
We have an opportunity to do that here. We can in one move serve a moral and social purpose in the world while serving our own national interests. The catalyst for that is the private enterprise system. I want the Treasury to take a firm grip on the revenues, the Department of Energy to pay attention to the proper use of the resources, and those concerned with our trade to seize this opportunity of generating new business around the world with countries which need our help and which can help us. I hope we shall not fail to grasp that opportunity.

Mr. Tam Dalyell: The hon. Gentleman has told us of the admirable survey of his 76,000 constituents. I am a bit curious as to how it was financed during the general election. Who paid for it?

5 p.m.

Mr. Dodsworth: I will answer that question precisely since it was a matter to which I addressed myself most carefully after advice and consultation at the time. The survey was quite properly part of my election literature. I referred to it, and to the issues I thought were important to the nation, in my election address. I told my electors that they had the chance during the campaign to send their views to me as, I hoped, a future


Member. I invited them to say how they thought the affairs of the nation should be conducted. I did not supply my constituents with pre-paid envelopes for their replies. They dug deep into their pockets and bought ninepenny stamps rather than sevenpenny samps, so eager were they to send their views to me. I am grateful to them. I have today sent a reply to all of those 375 constituents thanking them for providing me with information and telling them that I hope to have meetings at the House of Commons to discuss the issues they raised. There is a need for the House to be involved in the everyday ideas and thoughts of our constituents, from whatever walk of life, and whatever point of view they may hold. Not all those who took part in the survey agreed with me.
I should like to see us applying our resources in a way beneficial not only to ourselves but to our fellow human beings throughout the world. That is an idea which appeals to many of our countrymen. They look to the House of Commons to initiate such activity. I like to think that debates such as this provide us with the opportunity to advocate such causes, and I am grateful for the chance to raise the issue today.

Mr. Gordon Wilson: I thank the hon. Member for Hertfordshire, South-West (Mr. Dodsworth) for his reference to tied aid. I shall be foremost in advocating the cause of Dundee, East and Scotland as a whole as an area for overseas aid. We are an oil-producing country, and we seem to be getting very little value out of it.
I was interested in the remarks of the right hon. Member for Llanelli (Mr. Davies) about the rate of taxation which he thought appropriate to the current position, and I hope to return to that later. The whole Committee is grateful to the hon. Member for Bedford (Mr. Skeet) for allowing this matter to be raised, though I believe that a good number of hon. Members, especially on the Opposition Benches, would be keen to oppose his amendment should he press it to a vote.
The gist of my message is that the tax take-off from the petroleum revenue tax is inadequate. We heard from the hon. Member for Bedford about price increases which had taken place over the

last few years, but it was my contention in 1975, when the Oil Taxation Act was going through, that the rate of taxation then adopted was insufficient. The perspective of history will show that North Sea oil was an asset to be exploited with the utmost discretion. It is, after all, a non-renewable asset, a capital asset, and whichever party we belong to our object must surely be to ensure that the maximum benefit from that asset comes to the people of the country, however much we dispute which country that is.
My view is that the oil revenues ought to be increased by taxation so that the funds can be used to encourage investment for the future rather than domestic consumption such as has taken place over the past year to 18 months.
I think it fair, since most of my remarks will be addressed to the present Government, that I should say that the previous Government deserve a great deal of criticism in relation to oil taxation. I found during the proceedings on the 1975 Act that the then Government did a U-turn half-way through and abandoned a large part of their objectives, though admittedly—we had a hint of this from the right hon. Member for Llanelli—under pressure from the international oil lobby.

Mr. Douglas: Is the hon. Gentleman not being a bit unfair? The whole strategy in 1975 was to deal with the first 10 clauses of the Bill later on after consultation with the oil companies. There was no abandonment of strategy. There was an indication of a willingness to understand the problems confronting them at that time.

Mr. Wilson: I note the hon. Gentleman's remarks. I served on the Committee and I know that at the outset the order of proceeding was changed. Having been on that Committee and having been a party to certain understandings and information about what might be happening, I knew—it was quite clear from the international press—that the Government of the day were under considerable pressure from the international oil companies regarding what might happen if they exacted a higher rate of taxation than the oil companies considered the market could bear in relation to oil


production, and the consequences for the balance of payments.
If the hon. Gentleman casts his mind back three or four years he will remember that the balance of payments problem was considerable and that the Government were in some financial difficulty in relation to credit. Those difficulties eventually led to the IMF loan being made available. The Government were aware of their weakness in financial terms, though I think that they should be criticised for what happened at that stage.
The history of oil taxation is interesting. One recalls the Public Accounts Committee report and what was said by Mr. Edmund Dell and others criticising the lack of any taxation structure, because the Conservative Government had failed to produce one in time to deal with North Sea oil. Although they protested that such a plan was in their locker ready to be brought out and dusted off, it is perfectly clear that they were devoid of any real proposals which could have been adopted, judging by the time they had taken.
When we moved on to the Oil Taxation Bill certain things happened, which I referred to in my exchange with the hon. Member for Dunfermline (Mr. Douglas). It was very significant that an article in the " Highlights " column of the Petroleum Times for 7 March 1975 had this comment to make under the heading " UK Government's ' give-away ' tax ":
 The battle of the United Kingdom rate of petroleum revenue tax is now over, and the oil companies operating in the North Sea can chalk up another victory over a European government. Their success in this sector contrasts strangely with their failure to cope with the governments of the OPEC nations.
That was the comment from one respected journal at that time.

Mr. Douglas: Who was the author of the article?

Mr. Wilson: There is no author given, but if the hon. Gentleman cares to look up the article it is on page 3 in the " Highlights " column of Petroleum Times for 7 March 1975. I shall make a copy available to him if he so wishes.
That was the comment at that stage—that the rate of taxation and the 45 per cent. PRT with the combined oil allowances referred to earlier was too low.
On 24 July 1978 there was an article in the Financial Times presaging a change in the rate of taxation which the then Government had in mind. That article, after narrating some of the differences in price which had occurred said:
 The Treasury and Energy Department have been concerned about the high profit levels being earned by companies in such fields as Forties, Piper, Beryl, Claymore, Auk and Argyll. However, they are also trying to arrive at a formula which will continue to benefit the small or marginally profitable discoveries.
I suppose that the comments of the hon. Member for Bedford should be listened to here in the sense that perhaps the changes made may not in fact have the beneficial effect on the smaller field which was intended. Indeed, I accept the view of the right hon. Member for Llanelli that this is a highly complex area of study, and perhaps the time has come for a review of the whole oil taxation structure itself.
At the time of the passing of the 1975 Act, I canvassed the possibilities of a 75 per cent. rate of petroleum revenue tax and was shot down—not in flames, I think, but certainly shot down by Mr. Edmund Dell, then Paymaster General, who took the view that if the rate of taxation were fixed at 75 per cent. there would be an inhibiting effect on development in the North Sea, and, although he did not spell it out, his main worry was not, as far as I could see it, the rate of taxation but the impact that there might be on our balance of payments as a result of any falling off in oil production or, rather, any slowing down in the future rate of production.
In my view, the central issue is this. All is relative to two major factors. The first is sale price. The second is development cost. I admit that there has been an increase in costs through inflation over the past few years, although these increases themselves are dwarfed by the price additions which have taken place particularly within the past six months.
When the rate of tax was fixed at 45 per cent., the Paymaster General said in a statement at the time:
 I am, of course, fully seized of the fact that a change in the price of oil relative to price levels generally could have a profound effect on profitability … the Government will stand ready to review and adjust the incidence of PRT in the event of a sustained and significant change in the price of oil in real


terms."—[Official Report, 25 February 1975; Vol. 887, c. 291.]
I think that what the Paymaster General was intending at the time was to give an assurance to the oil companies that if there were a drop in price the rate of petroleum revenue tax might well be revised downwards to maintain their levels of profitability. But one can read that statement of his both ways.

Mr. Skeet: When the idea came forward in August last year, because the real price of oil had dropped should not the Paymaster General have revised PRT downwards to, say, 35 per cent. from 40 per cent.? That is not what he did. He put it the other way. He wanted it to go up to 60 per cent.

Mr. Wilson: That is an argument which the hon. Gentleman might have with the former Paymaster General, though outside this place since he is no longer with us. All I am saying is that what Mr. Dell said in the phrases which I have quoted could be interpreted two ways.
Since I have always held the view that the rate of taxation on oil at the start was too low, I am arguing that if the price of oil rises substantially it is fair and appropriate that the rate of PRT should likewise be increased in order to cream off some of the windfall profits—unexpected windfall profits, at that—which may be obtained by the oil companies.
The question now is whether the 60 per cent. rate of petroleum revenue tax proposed in the Bill, with or without the amendment proposed by the hon. Member for Bedford, would give rise to an appropriate state of affairs. What must be made clear is that the price of oil has risen substantially in the past six months. I quote now an extract from page 266 of the Petroleum Economist of July 1979 under the heading " North Sea revenue options ". The article is directed mainly to the use of the revenues rather than the rate of taxation, but this is what is said:
 After the latest price increases, last month's contract price for BP's Forties crude was $20·70 a barrel, compared with the official selling price of $14·546 for OPEC's marker crude, $16·40 for Kuwait's main export stream, and $18·47 for Iranian light.
The article then went on to make allowance for one dollar a barrel.
We know that the OPEC standard price is now $23·50. and to that may be added the premium which North Sea oil normally enjoys, though I understand from the comment of the hon. Member for Dunfermline that the rate currently charged is $23 and not the figure which the right hon. Member for Llanelli thought might be applicable in the autumn.

5.15 p.m.

All this suggests that we ought to have a close look at the rate of profits which the international oil companies will enjoy. Thanks—if I may use that word—to the liquidation of the Price Commission, no real check can now be made on superheated profits which might be made on stock and on inventory oil which is already on tanker bought at the lower price from the OPEC countries and now heading to the United Kingdom.
But we have some control over windfall profits which might be made from the North Sea. The history, as has been made clear, is that in July and August the then Government decided that a 60 per cent. rate of petroleum revenue tax was appropriate, with reductions under the relevant oil and other allowances and including, in particular, the 175 per cent. mark-up on capital costs. This was homologated—I am not sure at exactly what time—by the new Government round about May or June before the main oil prices had come through, although, admittedly, the trend of increased prices was then clear.
With the recent OPEC increase and equivalent increases in the price of oil from the North Sea, it seems to me reasonable that the rate of tax now suggested is inadequate, and I strongly urge the Government to look at the matter once again to see whether they can increase the rate of tax to a more appropriate figure.
There is a lot of money at stake here. The bon. Member for Hertfordshire, South-West spoke of the ways in which the oil revenues could be used. They could be deployed towards alternative energy resources. I certainly would not disagree with that. They could be used for the improvement of our industry or economy, and certainly in my country of Scotland that is badly needed, especially since the present Government are


dismantling a number of the regional aids which have existed hitherto.
If they are not lost in the bottomless purse of the Treasury and if they are not deployed towards consumption which merely sucks in imports, the funds which can come from oil taxation can be deployed in strengthening the economy, thus serving a genuine purpose and giving a useful boost. This is where an adequate rate of petroleum revenue tax which brought as much to the country as possible for spending on behalf of its individual citizens would certainly be a step forward.
I can only ask the Government carefully to consider not stopping at the 60 per cent. rate. It is not possible for me to suggest another figure which I may have had in mind, because that was ruled out of order, but what I can certainly do is request the Government to look again at what is happening in the light of the increased figures of cost and price which they had not anticipated when they themselves homologated the decision of the previous Government, and to make sure that, whatever else happens, the international oil companies do not go off laughing to the bank at our expense.

Mr. Nelson: I am greatly indebted to my hon. Friend the Member for Bedford (Mr. Skeet) for moving the amendment and enabling the Committee to have an opportunity to discuss whether the rate of petroleum revenue tax in the Bill is appropriate. When the matter has been discussed in the past, the prevailing conditions in the economy, the international market and the North Sea have been radically different. At a time when there has been a certain amount of concern about the effect of rising capital costs, spiralling prices for oil and a number of other factors, it is right that we should once more consider whether the rate proposed in the Bill is appropriate. The amendment is modest and I hope that the Treasury Front Bench will respond to it and justify fully the higher rate proposed in the Bill.
Whenever this issue is discussed, there are numerous figures bandied around. We have to deal with such vast telephone number figures and projections based on so many variables that we often find that the best laid expectations and the best

prophecies on profits, prices and returns come unstuck.
In 1975, when PRT was originally mooted, it was hoped that the return by 1980 would be about £500 million and that the value of total production would be about £3 billion. However, the total return from all the major taxes that bite into the profits from the North Sea—namely, 12½ per cent. royalties, 52 per cent. corporation tax and PRT—has not even matched the prospective take from PRT. That is partly a reflection of the delay in developing certain wells in the North Sea and the capital costs and difficulties that many companies have encountered. That indicates that the return in the next five years or six years will be substantially higher.
When considering the rate of PRT, it is appropriate to spend time considering what we earn from the other taxes that fall on North Sea oil production. I suggest that the Government's reply includes some clear impression of the official estimates of the total take from the three taxes. That is the relevant figure for the public to know in deciding whether they have a fair return from their own resources and whether the oil companies are left with sufficient net disposable resources to reinvest in further development.
My hon. Friend the Member for Bedford spoke about the importance of stimulating smaller companies to explore and develop their finds and to encourage larger companies to develop small fields and small lots that they may own. The problem in the past has been that the lack of progression of PRT, the tax being unique to the United Kingdom, has impinged highly on the prospective development of small fields. We have a continuing responsibility to set a tax regime for North Sea oil that will encourage the development of small fields.
About 18 months ago, I remember, the Treasury projected the effect of raising the rate of PRT from 40 per cent. to 60 per cent. on variable sized fields. The Treasury projected that the annual return to the company after paying tax from a field that has a production rate of about 60 million tonnes would be about £810 million. That amounted to a return of about 19 per cent. It projected that if PRT were increased to 60 per cent. the return would fall to about £730 million


and the rate of return on the capital employed would fall to about 17 per cent. It is important to note that the Treasury was projecting that the rate of return to the company from a field of about 60 million tonnes, which is a large field, with 40 per cent. PRT moving up to 60 per cent., would fall by about 2 per cent.
The second example is the small field with a production of about 30 million tonnes overall. The rate of return 18 months ago with 40 per cent. PRT was about 38 per cent. However, if PRT were increased to 60 per cent. the rate of return would fall to 31 per cent.
These are wide estimates, but they make it clear that PRT, with the hike-in of 20 per cent., will have a substantial effect on reducing the rate of return that may be expected, especially from the smaller fields. That works regressively against the large company with the small field and the small company which will probably be exploring and developing a small field.
In the sixth round of licences, I believe, about 46 areas are involved. In the light of the figures that I have given and the prospect of further developments in the Celtic Sea, and perhaps in other areas around our coastline, it is important to ensure that we create a regime that is not repressive to further exploraion and development.
In seeking to set the right rate of tax it is important to consider the capital structure of oil companies. We must consider whether the capital structure of the companies has changed. Are the companies now using a far greater proportion of debt to fund their capital investment? Bearing in mind that interest is not allowable in assessing the PRT liability, that will bite even harder on oil companies. The question whether the oil companies are using a larger proportion of debt in total on their balance sheets or in application to certain North Sea oilfields is one that may be answered by the Minister who replies. I hope that the Committee will be enlightened.
My impression is that the companies are using a much greater proportion of debt partly because they have not been able to generate, retain and reinvest their net resources, and partly because the supply of Eurodollars, which I believe

has been the principal source of major balance sheet funding for the oil companies, has in recent years been substantial, to an extent—perhaps ironically—as a result of the circulation of petrodollars back into the Eurodollar market.
Although that has made good sense historically for the oil companies as they have been able to borrow in a depreciating market and have been able to invest in the production of a commodity the real value of which has increased substantially, there is no certainty that that situation will continue. For oil companies that are starting to fund new oil developments in the North Sea, it may be that their experience will not be the same over the next five or 10 years.
The capital structure of oil companies and the way in which they fund future developments is an important factor for us to take into account in deciding whether PRT is the important item to jack up rather than varying other rates of tax or altering the various capital uplifts and other means of obtaining a reasonable take for the public from what is a precious and scarce national resource. I hope that the Minister will be able to respond to that.

Mr. Dalyell: The hon. Gentleman has said that the Government should take into account the capital structure of the oil companies. It is ironical that at the very moment he makes that suggestion the Government are considering taking away, and possibly dismantling, some of the powers of the only instrument to do that, namely, the BNOC.

5.30 p.m.

Mr. Nelson: At first sight, I do not follow why the BNOC is relevant to the argument. Perhaps the hon. Gentleman would say. To encourage small companies' field developments it is necessary to look at how they will fund them and, in setting our tax regime, ensure that it is fair and not repressive. The question of BNOC's activities in the North Sea, its holdings in those companies, and the degree to which it finances developments is relevant to the equation. However, I do not see it as the prime factor, as BNOC has a statutory right to a share in the North Sea developments. Most of the money that has gone into the development of those fields has been raised outside and not by BNOC. It has


been put into independent companies or wells through equity or interest holdings. However, perhaps I misunderstood the hon. Gentleman.

Mr. Dalyell: There is some dubiety whether the Department of Energy has the resources to do what the hon. Gentleman says.

Mr. Nelson: I did not suggest that the Department of Energy should become involved in this matter. It is important for it to make an assessment by looking at oil companies' balance sheets. I could do that for an appropriate fee. It is a simple exercise. Therefore, it is reasonable to ask for reassurance on the matter.

Mr. R. B. Cant: Did the hon. Gentleman suggest that the tax structure under the heads that he mentioned should be tailored to the oil enterprises as they adopted a certain amount of gearing in that capital structure and got into difficulties because they borrowed too much? Did he say that they derived advantages because they went into the Eurodollar market to borrow a depreciating currency with which to build up an escalating capital asset?

Mr. Nelson: Broadly speaking, that is what I suggest. That is what already happens. The petroleum revenue tax is unique. It was created for a unique sector of industry and a unique product. It already impinges and imposes liabilities on companies involved. Interest is not taken into account in assessing PRT liability. When PRT was established, interest was excluded partly as a recognition of the high interest costs of the capital borrowings of companies involved. That is my understanding of why interest was excluded. When PRT was set up a judgment was made about the capital structure of companies and the way in which the matter would be handled in the future. Now there will be less net disposable resources to reinvest, as circumstances change, to justify a tax regime of 60 per cent. PRT, or the reduced unlift rate that my hon. Friend proposes.
There are two other matters on which I should welcome the Minister's comments. One is the question of offsetting profits from one field against losses on another for the purposes of estimating

companies' PRT liability. I understand that companies are not allowed to do that at present. There may be good reasons for that which the Minister may be able to give.
If we are questioning whether this is a fair tax on companies and a reasonable tax on a scarce national resource, we should bear in mind the total liability, which may be nil for one company but considerable for another. However, companies' total performance in financial terms may not be substantially different, although they are not able to offset losses in one field against profits in another.
Unilateral tax relief is an important marginal factor. It must be considered in relation to the appropriate rate of PRT. Previously there were loopholes in the unilateral tax relief that were closed as a result of the Oil Taxation Act 1975. In 1977 the former Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey), threatened to restrict unilateral relief on some taxes paid by oil companies to other countries. I should welcome a brief comment from the Minister on the present situation. I have not been able to follow the changes and developments since then.
Broadly speaking, the Government proposal for a 60 per cent. rate of PRT, based on the total public take from all three taxes, is reasonable. On the face of it, I should be willing to support it.
It is fair that my hon. Friend the Member for Bedford allowed us to question whether the contribution from all three taxes was appropriate in terms of encouraging small field development and conserving and making the best possible use of a scarce resource. Striking the correct rate of tax is an arbitrary judgment, owing to the number of variables that will come into play. However, if the Minister can give an assurance on the overall take from North Sea oil over the next five to 10 years, his proposal is not unreasonable.
It is not surprising that the Opposition should seek a larger share of the profits from North Sea oil. I recall that at the time of the PRT debate the Labour Party wanted an 80 per cent. take from North Sea production between the three taxes. That percentage was lowered to between 70 per cent. and 75 per cent. On that basis a rate of 60 per cent. PRT was


originally mooted, but it was subsequently brought forward at 40 per cent. When it was announced by the previous Government that the rate would go up many Members of Parliament were approached by oil companies who said that the rate was unfair in the circumstances and would substantially inhibit future development.
I agree with my hon. Friends who expressed the view that we were in a new ball game. The substantial rise from about $14 last year to over $23 for light Arabian market crude this year means that even with these percentage rates of tax the net real return and the amount of money left in the coffers of the oil companies will be considerable. Therefore, many of the representations made at the end of last year and early this year about the proposed new rate of tax were greatly out of date.
On that basis—and with the assurances that I requested—I broadly support the figure mentioned in the clause. However, this has been a helpful opportunity to explore the lower rate put forward in the amendment. I hope that the Minister will comment on the important—I trust that he will not consider them esoteric—points raised in the debate.

Mr. Dalyell: I listened with care to the speech of the hon. Member for Chichester (Mr. Nelson). If I got the wrong end of the stick, he will doubtless interrupt me—in which case I shall give way. I thought that he touched on an important point when he said that the tax might have to be in some way tailored—a word that I borrow from my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant)—to the capital structure of the oil companies. I do not know whether the Chief Secretary thinks it is the business of Government to intervene in the internal workings of the oil companies to the extent necessary to give a meaningful answer to the questions asked. Although additional people may have been taken on, it would involve a mammoth task beyond the resources of the Department of Energy and give considerable problems to the BNOC
If I have misunderstood the hon. Gentleman, I shall give way to him. I think that what he says is very unrealistic and would lead to all sorts of arbitrary judgments. I note that the hon.
Member for Bedford (Mr. Skeet) is nodding. It would lead to enormous trouble and to endless recrimination between Governments and various oil companies. If I have not misunderstood the hon. Member for Chichester, he might like to reflect on what he was saying, because I think that in the middle of his speech he put forward some very unreasonable propositions.
I should like, Mr. Weatherill, at the beginning of my speech to refer to clause 19. It might be courteous to give time to the Treasury Ministers to find an answer to the matter I intend to raise. I shall not blame them if they cannot give it off the top of their heads. I think that clause 19 is of some relevance in relation to the amendment that we are discussing. At the moment I am somewhat mystified by clause 19. I represent, incidentally, Hound Point, which is possibly one of the major terminals of South Queensferry. I should like to know what is meant by the words of subsection (1):
 In section 3(1)(f) of the Oil Taxation Act 1975 (which allows expenditure of transporting oil from the field to the place where it is first landed in the United Kingdom), for the words ' the place where it is first landed in the United Kingdom ' there shall be substituted the words ' the place in the United Kingdom at which the seller in a sale at arm's length could reasonably be expected to deliver it or, if there is more than one such place, the one nearest to the place of extraction '.
I do not believe that those words have been put into the Bill without some reason, and I am curious to know the reason for them.

The Chairman: I must interrupt the hon. Gentleman and point out that we are discussing an amendment to clause 17, not to clause 19. The hon. Gentleman has asked his question, and I have no doubt that it will be helpful to the Minister, but may we now get back to the amendment?

Mr. Dalyell: I hope that when we get to clause 19 an answer will be forthcoming. I wanted simply to give notice of a matter to which I should like to have an answer.
A year ago my right hon. Friend the Member for Heywood and Royton (Mr. Barnett), who was then Chief Secretary to the Treasury, made a statement on North Sea oil taxation, and I asked him:
 Will not this package in general and the deductability of PRT from corporation tax in


particular help to solve the problem of exploiting small fields of marginal value in a rational long-term sequence? Will my right hon. Friend confirm that these financial measures help to solve that problem? 
The answer from my right hon. Friend was:
 As I pointed out to the hon. Member for Cornwall, North (Mr. Pardoe), there are more than adequate safeguards available to the Government, and I indicated in my statement that we are more than willing to use them to ensure that the national interest is taken into account in the development of small fields.
My constituency is one of those bordering the North Sea, and I can only report that there is a general feeling that a good deal of oil is being wasted, both in the small fields and in the difficult fields. Incidentally, the two may not be the same.
I refer again to the speech of the hon. Member for Chichester. As I understand the position, the volume of oil in any particular field, in terms of tax take, can be very misleading, because it depends, self-evidently, on how difficult it is to get it. It is a matter of where it is geologically. However, I do not make too much of a point of that. " Small " and " difficult " are not necessarily interchangeable terms in speaking of oilfields. but this is an important matter.

5.45 p.m.

The Chief Secretary, on the occasion to which I have referred, was asked by the then hon. Member for Dudley, West, Dr. Phipps, to
 confirm that the uplift provisions and the return on capital provisions already extant have not been changed, that they fully protect the smaller discoveries in the North Sea and that it is only the very large discoveries that will, in fact, be affected by this current change ".
My right hon. Friend replied:
 On the question of the uplift, as my hon. Friend appreciates, both in respect of small fields and large fields a lot of the capital expenditure will already have taken place, so they will still have obtained the benefit of the uplift at 75 per cent. But they will also have the benefit of the transitional arrangements, where public expenditure has been committed. When my hon. Friend considers the details of what I have said, I think he will see that most of the fields in the North Sea will be able to obtain what I have described as a reasonable return."—[Official Report, 2 August 1978; Vol. 955, cc. 757–9.]

There is a very wide feeling that the whole strategy is not as successful as it might be, in that there are several fields where exploitation has been too hurried. All the available materials—which possibly at $8, $10 or S12 a barrel were uneconomic but which nevertheless at $23 a barrel are economic—have not been exploited, and this is the problem. I ask the Ministers who are present whether they think they have available, as my right hon. Friend the Member for Heywood and Royton said last year, all the necessary mechanisms, or whether there are other methods which should be used in coping with a problem which is all too evident.
Are there any available figures—possibly they have been published and I have missed them—of how much income from petroleum revenue tax has been received to date? I understand that very little income has been received, and that this is partly due to the offsetting arrangements in the Oil Taxation Act 1975. Are there any hard figures showing how much has been received, and can any calculation be made about the offsetting arrangements? As time presses, I should like, Mr. Weatherill, to reserve the right to come back to this point.
Before sitting down, I should like to refer to an interview that my right hon. Friend the then Chief Secretary to the Treasury gave to journalists on 2 August 1978, the day on which he made his statement in the House. He was asked:
 Is it the Government judgment that the oil companies were making excess profits and this is the reason for this increase in the revenue tax? Could you give us some indication of the rate of excess profits you think were being made? 
My right hon. Friend replied:
 I can't give you figures about individual fields or individual companies, because I am not personally allowed to know about any individual taxpayer, whether it be a company or an individual.
As we know, that is very proper and correct. My right hon. Friend continued:
 But what I can tell you, and I was very pleased to note that the Opposition spokesman in the House today agreed, is that there were a number of oil companies and particular fields who were doing very well on the previous rates of petroleum revenue tax. This will reduce it somewhat, but will still leave it a very reasonable rate of return for large numbers of the fields being run at the present time.


Later on that occasion, in answer to a further question, my right hon. Friend said:
 The important thing, and I think it is reasonable, is that the companies should not be able to obtain a higher tax relief than the actual value of the asset, and that would apply, as wou will appreciate from the sums, if the uplift was a lot more than 35 per cent. with a 60 per cent. rating.
We want to know today what is the uplift position in relation to the problem which concerns many people on the east coast of Scotland and elsewhere in Britain, namely, what is to be done to make full use of such resources as we have available, given that once a field which is less than profitable is deserted at one stage in our history it is very difficult, and certainly much more expensive, to return to that field.
In the light of the various statements made by my own Government—which, without question, were made in good faith—now that the position and the price relativities have changed, what is the attitude of the present Government?

Mr. Iain Sproat: I apologise to my hon. Friend the Member for Bedford (Mr. Skeet), and indeed to the Committee, for being absent when he moved the amendment. As so often happens, I was trying to serve on two or three Committees at the same time.
I congratulate my hon. Friend on giving us the opportunity to discuss the structure of PRT. It is a subject which, although we have discussed it in the last couple of days, is not discussed often enough. I urge my hon. and learned Friend the Minister of State to look at the proposals put forward by my hon. Friend the Member for Bedford, with particular regard to the marginal fields.
One matter which must concern anyone—not only an hon. Member who represents a constituency involved with North Sea activity but anyone who is worried, as indeed we all are, about the economy—is the very dramatic downturn in activity in the North Sea which we have witnessed over the past two or three years. This downturn is currently threatening our ability to keep up the self-sufficiency level of 2 million barrels a day production that we expect to reach next year.
As my hon. and learned Friend will know, the United Kingdom Offshore Operators Association, in its last report to the Energy Commission, said that it would not be an unreasonable prospect for this kind of production rate to be kept up well into the 1990s. Of course, with the current threat to our energy supplies, and the need to maintain the benefit of North Sea oil for our economy, there is more reason today why the Government should do everything they can to achieve this target. Indeed, the understandable euphoria that greeted the very high production rates achieved so far in the North Sea tended to obscure—perhaps not to hon. Members but certainly to many outside—the very dramatic falloff in exploration effort during the last few years.
The figures show that prior to 1975 seven major oilfields were discovered, only one of which was discovered during the last four years. Before 1975 one well in nine discovered a commercial field, but the success rate since then has been only one in 74. Up to 1975 about 3,175 million barrels of theoretically recoverable oil were discovered, following five years' intensive exploration. That figure has since declined very rapidly with only 725 million barrels of oil being discovered in 1977, and 50 million barrels during the first five months of last year. Additionally, wildcat drilling declined in 1975 from 75 wells to only 37 last year. In the first half of this year the rate was even lower.
It is to reverse this unhappy trend that I hope that the Government, and in particular my hon. and learned Friend with his responsibility for the tax rate, will do everything possible to encourage a rate of, say, 20 explorations continuously in operation during the next decade, drilling between 60 and 95 wildcat wells a year. In other words, I hope that we shall return to the peak effort that we saw in the North Sea during 1975.
If that is not done, and if every encouragement is not given—not just through tax structures as my hon. Friend's amendment suggests—we all know that there is liable to be a very severe problem in the late 1980s as production begins to decline in existing fields which cannot be replaced by production from as yet undiscovered new fields. In other words, my hon. and learned Friend must look


at this problem in the long term and not allow short-term Treasury needs to deflect overall North Sea effort, as occurred under the Labour Government.
I was pleased to hear that talks began last week with major oil companies to discover exactly how they believed—we do not need to take their advice—it would be possible to stimulate development in the marginal fields. Perhaps my hon. and learned Friend will confirm this.
My hon. Friend the Member for Bedford suggests the interesting reduction of 4 per cent. in the PRT rate. In general terms, I would not quarrel with the Government's present proposal to raise PRT to 60 per cent. and to reduce the allowances against tax which companies were previously permitted. Although these are justified in general, I hope that my hon. and learned Friend will again consider these rates—the uplift and the allowances —as applicable to marginal fields. Increasing our exploration rate in the North Sea, in marginal fields, is one of the most urgent tasks now facing us. Consideration of these tax rates could, I believe, be a vital factor in encouraging such exploration.

Mr. Douglas: I shall not follow the remarks of the hon. Member for Aberdeen, South (Mr. Sproat), as we engaged in pleasantries along the same lines last Friday. However, I welcome the opportunity to consider in greater detail the tax regime which the Government propose.
It is worth going back to 1973 and the report of the Public Accounts Committee. That report recommended that we should look at what the oil companies would pay in tax on profits made in the United Kingdom. The examination of the Public Accounts Committee on that occasion found that major oil companies registered here would pay very little tax. Had we persisted with the tax regime then in existence, the benefits in terms of tax revenue from North Sea oil enterprises accruing to Her Majesty's Exchequer would have been few.
The Public Accounts Committee, in its wisdom, made certain recommendations, the major one being that we should consider a quantity tax. That would have meant a barrelage tax, which frightened the life out of the oil com-

panies. They nearly died with their feet up when they heard that suggestion.
The Conservative Government at that time made certain noises about what they would do in future in terms of North Sea profits. When we came to power in 1974 we carried out an undertaking not only from the point of view of tax but also regarding the total strategy of what the Government would take. I urge the Minister seriously to consider a similar strategy now.
Although we are discussing a major item concerning the Department of Energy, there is no Minister from that Department on the Front Bench. That point needs to be made, because if there is to be arm's length dealing between the Department of Energy and the Treasury we shall not have a total strategy. In 1974 the Government had a total strategy, embracing royalties, petroleum revenue tax, corporation tax and participation through the creation of the British National Oil Corporation. That was a total package.
What we are seeing, albeit in relation to our discussion on this narrow amendment, is the paring away of the total strategy. The PRT was originally introduced at 45 per cent. In my opinion, that was too low. It was a figure that was almost plucked out of the air. I believe that at that time we could have had at least a 50 per cent. PRT which the oil companies would have accepted.
If hon. Members want a cure for insomnia, they might be interested in reading the further memoirs of the right hon. Members who were on the Government Front Bench at that time, in order to discover why the figure of 45 per cent. was decided upon.

6 p.m.

This was a new ball game, and I think that negotiations were perfectly acceptable. I do not think that anyone can quarrel with that, because one must achieve a balance between the tax revenue that is desirable and the actuality of field operations. As it was first devised, the PRT, with uplift and so on, was wonderful in terms of tax revenue, but it did not take cognisance of the actual operations in the North Sea. I base my argument on the belief that the original rate was too low.
I come to the assurances given by the then right hon. Member for Birkenhead, Mr. Edmund Dell. I submit that those assurances were made against the keeping of the total regime. Since the oil companies catch up with tax loopholes, one is perfectly entitled, in terms of safeguarding the revenue—which is the responsibility of both sides of the Committee—to make adjustments.
Can the hon. and learned Gentleman disclose the latest Treasury thinking on the total tax regime? What are the motivations in reducing the uplift from 75 per cent.? Is it because the oil companies, instead of taking arm's length deals from the producers of capital equipment in the North Sea, are submitting against uplift full financing packages which include interest? That point deserves an answer.
The hon. Member for Chichester (Mr. Nelson), who has now left the Chamber, talked about adjusting a tax system against the balance sheets of the companies. I took that to mean something rather different from what my right hon. Friend the Member for West Lothian (Mr. Dalyell) took it to mean. I took it to mean that one had an uplift and an oil allowance to suit not only the marginal fields but also the companies that could not finance capital development off their own balance sheets. The big boys who could finance capital developments off their own balance sheets were all right; they got a bit of a bonus. My understanding is that these adjustments were designed to suit those companies that found it necessary to borrow from the banks and so on.
If the bigger companies have been making use of this loophole, and have been doing full financing including borrowings, this Committee is entitled to know. Perhaps we should press the Treasury to make a full statement on why it is adopting this regime at this point in time.
I come to the marginal fields. I have a great deal of sympathy with the argument of the hon. Member for Bedford (Mr. Skeet). It would be acceptable to devise a regime that had graduations in PRT, but if we cannot devise such a regime we ought certainly to look at graduations in royalties, as the Norwegians have done. Royalties ought to be related to field sizes. There ought to

be a statement this evening as to the willingness of the Treasury to forgo royalties on the smaller fields. What is the Treasury's tactical approach to this? If one embarks on capital development for the 50-million barrel to 100-million barrel fields, if not in excess of that, one must have some understanding as to how it will be financed as well as the gains that are offered.
I therefore hope that the Minister will have something to say about the remission of royalties. The power exists. What are the Treasury's intentions, and what discussions is it having with the oil companies?
I turn to the role of BNOC. The Conservatives want to go back to their post-1974 policy, when all they wanted was a sort of Texas railroad commission, where one just had a regulatory authority. There may have been some acceptable arguments for that in the past, but in the present situation it is not admissible in terms of protecting the public interest. The public has a right to know the extent of North Sea reserves. It has a right to know the capital and current cost of developing these reserves. It has a right to know the profits that stem from those reserves, and where the oil and gas will go once they come ashore. The only way one can effectively exercise those rights is to have a seat at the table, in particular a seat in the operating committees.
That is what frightens the oil companies. The tax regime does not frighten the oil companies. The oil companies will live with the tax regime. They have done, and will continue to do so. However, they object quite strongly to licensing conditions that give the British taxpayer a seat in the operating committee, because that is a seat at the top table. I admit that there are difficulties in exercising this, because the skills available to evaluate what goes on in the North Sea, and in other offshore developments, are internationally scarce.
Having had the fortuitous situation where, because of the failure of Burmah, BNOC was able to acquire very quickly the staff and expertise of the Burmah Signal Company operating in the North Sea, it is absolutely vital in the national interest that that is not destroyed. Hon. Members on both sides of the Committee who have the national interest at heart ought to support that argument.
I am sorry that energy Ministers are not present. I hope that the Government will accept the argument. This is no time to embark upon a dismantling of BNOC. This is also no time to sell our shares in BP. The terms of the tax regime are very important, but I hope that the Minister will also ensure that the national interest is protected not only in 1979 but into the late 1980s and 1990s.

Mr. Nigel Forman: I find myself in agreement with the hon. Member for Dunfermline (Mr. Douglas) in at least one of his arguments, namely, the importance to the whole Committee of getting from the Minister the fullest possible information on the Treasury's current expectations about the different volumes of yield not only from PRT but from all the other taxes that apply to the North Sea.
However, I feel slightly provoked by what the hon. Gentleman said about the impeccable position of BNOC and the need to leave it exactly as it stood before this present Parliament came into being. I am delighted that my right hon. Friend the Secretary of State for Energy has been undertaking a comprehensive review of its activities and operation. If he sees fit, it would be right at the end of that review to separate its twin roles of referee and player.
I should be interested to hear from the hon. Member for Dunfermline whether he knows of any companies around the world that are analogous to BNOC. I know of no instance where it is necessary for other Governments to have an agency such as BNOC with such an invidious dual position.

Mr. Douglas: I can immediately respond to the hon. Gentleman and tell him that in Norway there is STATOIL.

Mr. Forman: I am grateful for that, but having looked at STATOIL I am not convinced that the position is analogous. No doubt we can return to that point.
I intervene mainly to pay tribute to my hon. Friend the Member for Bedford (Mr. Skeet), who speaks with great knowledge and experience of these matters. I was glad to learn from the right hon. Member for Llanelli (Mr. Davies) that the Labour Party welcomes the proposed change from 45 per cent. to 60 per cent.
I believe, however, that he was wrong to argue for even higher rates of tax. The Government have struck the right balance with the increase in the PRT rate, not least because it is accompanied by an undertaking to set up a working party fully to investigate the tax position of the marginal fields and examine ways of making the award of royalty relief less discretionary and therefore less capricious from the point of view of the companies.
The Committee should be concerned with the fall-off in the drilling and exploration rate in the North Sea. We must balance a continuing drilling and exploration rate with our desire fairly to maximise the revenue available to the country. The Government have the balance about right, and the important area of controversy concerns what to do in relation to marginal fields. There are at least two ways of considering the problem.
We can Pursue the line of argument of the hon. Member for Dunfermline that there should be graduated treatment of the tax position according to the size of the field. That argument is fairly understanding of the oil companies' difficulties and it is interesting that it should come from the Labour Benches. It is, however, the same large companies in many cases that are involved in fields of different sizes. Although they may be drawing accountancy rings around their operations in different areas, the Treasury in looking at the overall picture has to consider the swings and roundabouts. In this area they are large companies. They will be offsetting the great risks and cost per unit in the marginal fields against the more favourable conditions in the large fields.
The Government are right to adopt a non-dogmatic approach and link the rise in the rate with these other concessions. With great respect to my hon. Friend the Member for Bedford, it would be a mistake to move the rate down the four percentage points. There is force in his argument, but it would be difficult to explain to our constituents in Bedford, Carshalton or elsewhere that as Conservatives we do not take the view that it is right to create the conditions for private enterprise to prosper in the North Sea. We should equally take the maximum feasible slice of revenue for the taxpayer


and the country in a perfectly open, above-board way. It is infinitely preferable to proceed with a tough rate of PRT which implies constant terms and conditions of levy together with an element of continuity and certainty for the companies rather than a regime of treatment that is uncertain from one year to the next. That was too often the case with the previous Government.
6.15 p.m.
It is deplorable that many Labour Members do not grasp the achievement of private enterprise in the North Sea. The figures will be familiar to many of my hon. Friends. Ninety-two per cent. of the investment of over £14 billion in the North Sea comes from the private sector. That has helped create about 50,000 jobs in Scotland and a further 50,000 elsewhere. The total cumulative net savings on our current account balance of payments over the four years 1974 to 1978 was £9·6 billion.
We must strike the right balance for the operation of the oil companies in the North Sea so that they have the confidence necessary to pursue their difficult and costly operations. They need continuity of treatment and the Government must play fair by them. We must do that in the knowledge that the purpose of treating the oil companies in a decent and above-board way is to lengthen the time during which the Government can put greater stress on energy conservation policies and move towards the development of replacement sources of energy. Although I understand the arguments of my hon. Friend the Member for Bedford, I believe that this is the fair, right and transparent way for the Government to proceed. I urge the Minister to give the House the fullest possible information in his reply.

The Minister of State, Treasury (Mr. Peter Rees): I congratulate my hon. Friend the Member for Bedford (Mr. Skeet) who moved the amendment with his customary skill and depth of knowledge of the oil industry and energy problems generally. He gave the Committee the opportunity for a far-ranging debate on petroleum revenue tax. The hon. Member for Dunfermline (Mr. Douglas) widened the debate into a general discussion of energy and I make no complaint about that.
There was a great deal of common ground between all hon. Members. Every right hon. and hon. Member who spoke recognised, if not explicitly at least by implication, that there is a delicate balance to be struck. We all wish to achieve the maximum benefit for the people of this country, as the hon. Member for Dundee, East (Mr. Wilson) said, although he may define the people of the country in a slightly different way from myself. I hope that he, too, wishes that the whole country, north and south of the border, west and east of Offa's Dyke, and Northern Ireland too, should benefit from North Sea energy. The method of achieving that benefit is a matter for legitimate debate.
We should proceed in a spirit of enlightened self-interest. We wish to achieve the maximum benefit for the country, but if we strike a wrong balance and press the oil companies too hard, the people of this country may ultimately suffer. Oil may be extracted at the wrong rate or not extracted at all. Marginal fields may be left unexploited.
Certainly I have approached this debate in the spirit which my hon. Friend the Member for Carshalton (Mr. Forman) urged upon me. Indeed, the whole Committee has debated this issue with a singularly undogmatic spirit. I believe that the package which the Government are commending to the Committee in these clauses is right, but I certainly would not dogmatise. I would not say that in no circumstances could it be reviewed. Neither would I say that it necessarily met every side of the problem. All I would say is that we have done our best and we hope that we have struck the balance fairly.
When the right hon. Member for Llanelli (Mr. Davies) spoke of the proposals that were produced in August 1978, he chose to think that events had overtaken this Government. Certainly, events have moved on since August 1978. The package may have been right then and it may have been wrong, but we had to look at the position again. Perhaps there has been retrospective justification for the package as it was then produced, but I suggest that orginally it struck the wrong balance.
I am fortified in the conclusion that the Government have taken on this matter


by the delicate balance between the arguments advanced from both sides of the Committee. My hon. Friend the Member for Bedford argued so persuasively that the regime was too severe. He called for a slightly less exacting regime of PRT at 56 per cent. instead of 60 per cent. I am sure that the Committee listened to his arguments. On the other hand, the right hon. Member for Llanelli thought it was a far too lenient regime. I congratulate the right hon. Member for not having adopted the well-known cliche that has featured all too often in our recent debates—that of a " rip off " for the oil companies. The right hon. Member put his case in a more moderate way, as one would expect.
The hon. Member for Dundee, East also suggested that a slightly tougher regime should be adopted. The fact that his amendment was not selected did not inhibit him from putting the case for a more exacting regime. Other of my hon. Friends have suggested, however, that perhaps we should have been a little more tender in the interests of the oil companies, not because they are advocates for the oil companies—it is slightly offensive to suggest that they are—but because they are concerned to get the balance right.
It should be recognised that the oil companies deploy capital and expertise all over the world and if the fiscal and royalty conditions that we set are not right, they could readily deploy that capital and expertise elsewhere.

Mr. Forman: Is my hon. and learned Friend aware that that occurred in Indonesia where a number of leading oil companies did withdraw and had to be inveigled back on terms that were a great deal less satisfactory to the people of that country?

Mr. Rees: I am glad that my hon. Friend reminded us of that example. No doubt those with longer experience of the oil industry could cite other instances. There are obvious potentials to be exploited in the Gulf of Mexico. I do not wish to parade through the mythology of the Labour Party because this has been a singularly good-natured debate, but the fact is that in Socialist mythology the multinationals feature as demons with sinister motives deploying their forces illegitimately all over the world. Luckily

that strain of thinking has not surfaced in this debate.

Mr. Douglas: Would the Minister care to name another province in the world that has been more profitable, not only to the oil companies but to the contractors operating?

Mr. Rees: I am flattered by the hon. Member's question. After all, companies, individuals and partnerships have been extracting oil for more than 70 years, and to suggest that I could answer that question off the cuff, without notice, is remarkable. If he cares to write to me I shall do my best to answer it. Is my hon. Friend the Member for Bedford coming to my assistance?

Mr. Skeet: No, but I want to point out that Kuwait—where the cost of producing a barrel of oil is about 12 cents a barrel at a time when the current price of oil is about 20 dollars a barrel—is the most profitable field, not the North Sea.

Mr. Rees: I do not believe that that information is directly relevant to the point on which this Committee must form a view tonight. The capital and expertise available to the oil companies can be deployed in any part of the world and therefore we must get the balance right. Even the hon. Member for Dunfermline should realise that whatever role he casts for BNOC, that body certainly is not capable of conducting the exploration and development of the North Sea single-handed. If we can start from that common ground we can look relatively dispassionately at the kind of fiscal regime we should devise in the light of the increasing oil prices over the past few months.
I remind the right hon. Member for Llanelli, who seemed over-ready to discard the package that his right hon. Friend put to the House in August last year, that when that package was put together there had been a decrease in the real price of oil since PRT had been introduced. On that basis we certainly had reservations about the package. We were prepared to look at it and support it, possibly with amendments. However, I do not think it is particularly relevant to return to the position in August 1978 because we have moved on from there.
There has now been an increase of 20 per cent. in real terms in the price of oil


since PRT was introduced. That contrasts with the position in August last year. Whereas we had considerable reservations about last year's package, we feel that it probably meets the circumstances against which we are debating the position today. To go on from that and to say that because there has been an increase over the past two months—and I recognise that the position has altered possibly even since the Second Reading of this Bill—prices must inevitably go up and up and up and therefore we should introduce harsher regimes, is to show an undue certainty in a situation in which no one can speak with complete assurance.

Mr. Denzil Davies: I did not deploy that argument. I said that the package in August last year was broadly right, and I would be expected to say that. I thought that it was right in view of the price of oil at that time. Now, because of the increase, that package is too lenient. That was my argument. I did not say that prices would go up and up over the next 25 years. I do not know that, but I suspect that they will.

Mr. Rees: I apologise to the right hon. Gentleman if I did not entirely appreciate the subtlety of his argument. Going back to August last year, I remind the right hon. Member that the real price of oil had declined since he and his right hon. Friends introduced PRT in 1975. On that basis and against the assurances that have been given I do not feel that that package was then justified. However, against the increase in real prices of about 20 per cent. since then—which no one could have reasonably foreseen in August 1978—I suggest that although the package was then wrong, it has been retrospectively validated. That is why this Government have been prepared to adopt it.

Mr. Gordon Wilson: Does the Minister accept that the OPEC countries have institutionalised the price of oil at $23·50 a barrel and therefore for the foreseeable future that will be the reigning price of oil? There may be some minor fluctuations downwards, but almost certainly the price of oil will rise in the future. If the previous package, under the Oil Taxation Act 1975, was far too low—as the Treasury agreed in respect of certain fields—does he not now think that the

rate of taxation should be increased to more than the 60 per cent. which is stated in the Bill?

Mr. Rees: I do not know whether I quite understand what the hon. Member means, but I do not wish him to challenge me again. If OPEC is an institution and it is capable of rationalising prices, I would have thought that it did so, by the same token, in 1973–74. But we observed a downward drift from 1974 until the spring of this year. It is not impossible, even with the present OPEC set-up, and in view of present world demand for the price of oil, that it will drift downwards again. I do not want to make any forecast this afternoon, but I wish to emphasise the volatility of the present situation and the uncertainties against which we have to reach a conclusion on the package which the Government are now presenting to the Committee.

6.30 p.m.

Before I come to the assurances about stability given by the Labour Government and by spokesmen for my own party, I wish to deal with various questions that were put to me about the United Kingdom's share of North Sea oil. The hon. Member for West Lothian (Mr. Dalyell) asked what was the petroleum revenue " take " up to 1979. It is calculated by reference to calendar rather than to fiscal years. The figure is £450 million by contrast with royalties for that period of £650 million.
The hon. Member for Dunfermline and my hon. Friend the Member for Chichester (Mr. Nelson) asked what is the likely petroleum revenue take for 1979 on the new basis contrasted with the old basis. On the old basis it would have been £620 million on the best evidence available to the Government. On the new basis it will be £730 million—an increase of £110 million.
The hon. Member for Dunfermline and my hon. Friend the Member for Carshalton—establishing an identity of interest if not a complete identity of view—asked for the total Government revenue from the North Sea—that is to say, from petroleum revenue tax, corporation tax and royalties from the date on which North Sea oil came on stream until 1985. It should be about £18·3 billion on the new basis, and on the old basis it would


have been about £16½ billion. I emphasise that those figures are only speculative.
The effect of the package which I am commending to the Committee is to increase the total Government take as a percentage of total undiscounted profits for a field from just under 70 per cent. to just over 75 per cent. as a broad average. There are wide variations in fields and that may not be a particularly meaningful figure.
I wish to emphasise that the marginal take on a barrel of oil as a result of the new measures will be about 82 per cent. If the Committee wishes that figure to be broken down, I can tell hon. Members that it is 12½ per cent. royalties, 52½ per cent. PRT and 17 per cent. corporation tax. I hope that the Committee will accept that that is a considerable marginal take. It takes us up to what were the higher ranges of income tax. I do not want to reopen yesterday's debate, but at least the Committee's view then was that an 83 per cent. marginal rate on earned income was too high and that we should bring it down. Therefore, by the same token, I believe that this is a pretty high marginal take on a barrel of oil.
The hon. Member for Dunfermline, insatiable as ever for facts, wanted to know the best view of the quantity of recoverable oil. I commend the hon. Gentleman to a document entitled " The Development of Oil and Gas Resources of the United Kingdom 1979 " produced by the Department of Energy. On page 3 that document states:
 The quantity of recoverable oil reserves originally in place on the United Kingdom continental shelf is estimated to he between 2,400 million and 4,400 million tonnes—that is between 18 billion and 33 billion barrels.
Against that indigestible factual background, I should like to consider some of the interesting suggestions for improving the PRT regime. It is important to consider the assurances that were given when PRT was introduced. I am compelled, therefore, to read the assurances given on both sides. I turn first to the comments which were made by Mr. Edmund Dell. It may embarrass the right hon. Member for Llanelli if I say that we regard Mr. Dell as a person of singular moderation and good sense.

Mr. Denzil Davies: It does not embarrass me.

Mr. Rees: I am delighted to have that unanimity of view about Mr. Dell's contribution to past debates. I am sure there is almost a unanimity of view about how greatly we regret his departure. Why he should have departed and into what fields perhaps it would be provocative of me to speculate about.
Mr. Edmund Dell said on 27 November 1974, when introducing the Oil Taxation Bill:
 While I cannot at this stage say anything about the likely rate of petroleum revenue tax, I can indicate our views on one associated question which is of vital importance to the companies, that is, the duration of a rate once fixed. This is, of course, a matter for Parliament, and no Government can enter into any binding commitments in relation to a matter which is subject to Parliamentary determination. Our policy would, however, be to avoid frequent changes of the rate but to be prepared to review the rate of tax if substantial changes in the situation were to occur. One such change would be a significant shift in oil prices."—[Official Report, 27 November 1974; Vol. 882, c. 473.]
Certainly by August 1978 no significant shift in oil prices had occurred—or, if there had been a shift, it was downwards.
What Mr. Dell said on that occasion was very much in tune with what was said by my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) who led for the Opposition in the Standing Committee on the Oil Taxation Bill. He said in February 1975:
 We appreciate that there is need for considerable stability in the tax regime as it applies to a long-term industry such as offshore oil and gas exploration and development. Therefore, I hope that, having once got the structure of the tax roughly right, the Government will not seek to use the tax as a short-term regulator or anything of that sort.
Nevertheless, it would be quite unrealistic to imagine that the tax will not require amendment …
I, too, want to stress on behalf of the Opposition what the right hon. Gentleman said about the manifest undesirability of a tax of this sort, which is solely for revenue-raising purposes in a specific circumstance being used in any sense as a short-term regulator. He and I both know that what we say cannot bind our successors, whoever they may be."—[Official Report, Standing Committee D, 6 February 1975; c. 727–730.]
There was obviously singular unanimity on that matter. Against that background, I hope that the right hon. Member for Llanelli will not, out of undue cupidity, press on the Committee rates which perhaps are not justified by the


real increases in the price of oil which have so far taken place.
I was a little surprised that the right hon. Gentleman suggested that we should review the whole structure of the system.

Mr. Skeet: Hear, hear.

Mr. Rees: This introduces an element of uncertainty, against which long-term investment and development are not feasible. I believe that it would have a profoundly discouraging effect on those who might be prepared to hazard their capital and expertise in the North Sea.

Mr. Denzil Davies: I think that it is reasonable as time goes on to review the structure of PRT. It was a tax that was introduced for the first time in this country. I believe that it was an excellent effort and it has worked very well, but surely circumstances change and I do not see why that tax, any more than any other tax, should not be reviewed. The Minister should not put too much weight on the need for constant stability if there are changed circumstances.

Mr. Rees: Considerable thought was given to the tax when it was introduced four years ago. Now the right hon. Member for Llanelli is saying that not only are the rates wrong but the structure needs a fundamental overhaul. He must curb his restless, tinkering mind. I know that there has been an overhaul of the whole battery of capital taxes and that subject will be returned to in the next Finance Bill. There have been considerable reforms in income tax. But the right hon. Gentleman should recognise that it is important that there should be a measure of stability so that people can plan their businesses and their lives. An assurance cannot be given that until the end of time there will be no amendment to income tax, capital gains tax, corporation tax and all the other taxes that afflict the nation.
If the right hon. Gentleman is suggesting that the tax was introduced in a frivolous and short-sighted manner and he is prepared to come candidly to the Dispatch Box and say that, let me say to him that there is more joy in heaven over one sinner that repenteth.… However, the Government wish to approach the tax more modestly. We acknowledge that the Labour Government

gave it considerable thought but the assurances that they gave did not extend to freezing the rates if there was a considerable shift in the price of oil.

Mr. Denzil Davies: The hon. and learned Gentleman and his colleagues will review capital transfer tax with great zeal. Why the difference with petroleum revenue tax?

Mr. Rees: The difference may be spelt out from our respective contributions to the debates when the taxes were introduced. We feel that capital transfer tax is wrong in many major particulars, particularly the rates. We shall review that tax thoroughly and the House will have ample opportunity to debate that next year.
The right hon. Gentleman described our attitude as niggly. I would prefer to say that it was constructive. We were not bound to accept uncritically the package that was produced in 1975 although there was not the same deep controversy over the structure, the rates and the approach which characterised the debates on capital transfer tax.
Various hon. Members have made fundamental proposals. My hon. Friend the Member for Bedford suggested that the tax should be progressive. I shall answer him in the same way that I answered the right hon. Member for Llanelli. My hon. Friend the Member for Bedford was not the midwife who presided at the birth of petroleum revenue tax and I do not believe that there should be a fundamental change of the sort that he proposes. In the sphere of corporate taxation there are no precedents for a progressive tax. There are remissions for small companies but the principle has been accepted generally that corporate taxation should be at one rate.
My hon. Friend the Member for Chichester suggested that the tax should be tailored to each field and each company. That would defy the ingenuity of the Administration. It is not always possible to anticipate in advance the relevant circumstances. If we were to devise a series of individual taxes retrospectively, my hon. Friend would still find fault with that. I am sure that the Committee would not expect that taxation should be done in retrospect. We recognise that we are fallible and there will


be a few wrong moves but we shall try to devise a framework to cover most circumstances.

Mr. Nelson: Has there been any reconsideration or partial reconsideration of the way in which interest is treated in the assessment of PRT liability? If people are funding their North Sea oil operations with a substantially larger proportion of debt rather than equity there might be a case, given the reduced uplift, for being rather more lenient and taking interest payments into account.

6.45 p.m.

Mr. Rees: My hon. Friend is right and that is touched on in the uplift provisions. Most evidence confirms the fact that the rate of 25 per cent. provides for cover if there should be a dramatic change. We have approached the problem with an open mind on the best evidence available, but I take my hon. Friend's point. The hon. Member for Dunfermline made the same point as my hon. Friend the Member for Bedford, that petroleum revenue tax should be graduated.

Mr. Douglas: Before the hon. and learned Gentleman moves on, will he comment on the point I made about the way that certain companies are using the uplift against a full financing of a project, including interest charges?

Mr. Rees: Uplift was designed to compensate for the fact that interest relief is not available. Companies have financed their development in a variety of ways and it follows inevitably that the uplift provisions do not precisely affect the circumstances of every company that operates in the North Sea. However, we believe that there is a broad measure of justice.
My hon. Friend the Member for Chichester mentioned the question of unilateral double taxing. There is no question that that touches on petroleum revenue tax—it is a matter of corporation tax. We shall keep the situation under review but I do not believe that it is directly relevant to today's debate.

Mr. Nelson: I made an additional point about the offset arrangements for losses in one field being offset against another. Will my hon. and learned Friend comment upon that?

Mr. Rees: I am grateful to my hon. Friend for reminding me about the matter. The ring fence principle, as it is sometimes described, is now embedded deeply in petroleum revenue tax. I cannot offset losses to other fields outside the remit of petroleum revenue tax although that is sometimes done with corporation tax. Strong arguments can be applied for breaking down the ring fence concept but the consequences would be to defer the payment of tax on a number of North Sea fields for an indefinite period of time. The British are entitled to a more immediate return from the North Sea in terms of petroleum revenue tax at least. The North Sea has been developed for about four or five years and the figures I gave earlier demonstrate that the considerable element of front-loading has prevented large sums of PRT being paid so far. We look for considerable returns in the years to come.
The matter of the marginal fields is uppermost in the Committee's mind. We want to be reassured that the development of the marginal fields is not stultified and retarded by the tax regime that we are commending to the Committee. I do not believe that the existing provisions will have that effect. However, there is an extra dimension to the problem —the question of royalty remissions. It is not possible to devise a hard and fast formula by which to judge whether there should be a remission of royalties in a given case. I understand that there have been two or three applications for remission, none of which has been granted. That shows that there has not been a flood of applications so far.
This is not specifically a fiscal measure. A considerable measure of discretion should be left to the Secretary of State. I do not say that because he is a member of a Conservative Administration. The most substantial reassurance offered by the Government was my right hon. Friend's statement that he was setting up a committee to examine marginal fields and whether there were adequate safeguards. I am happy to say that that special committee has been set up and is now in operation. If there are any reservations or worries on this score they should more practically be addressed to that committee.
Amendment No. 60 was helpful because it enabled us to explore more


thoroughly than usual—because of time restrictions—the petroleum revenue tax regime. We also explored certain aspects of energy, on some of which I am not qualified. We owe my hon. Friend the Member for Bedford a debt of gratitude for providing us with the opportunity. I hope that he will feel that justice has been done to the view that he so ably argued. I hope that he will withdraw his amendment and feel that the interests which he champions so thoroughly will be safeguarded.

Mr. Cant: For the first time I am rather disappointed by the Minister of State, not because I disagreed with what he said but because he did not repond to some of the important arguments from the Opposition and from his hon. Friend the Member for Bedford (Mr. Skeet).
North Sea oil exploration is one of the great wonders of the world. Anbody who is prepared to exploit a hostile area such as the North Sea to obtain oil is worthy of zero tax rating. However, that is not practicable.
The Minister has not said what will happen to the money raised by the PRT. Nobody objects to certain rates of tax so long as the use that is to be made of the money can be seen more clearly. I had hoped that the Minister of State would throw some light on this. As the hon. Member for Bedford said, we are in a new ball game. The estimates are conjectural but there will be a substantial benefit, not only to the balance of payments but to the Budget. Whether this is a progression from £1·6 billion to £6·1 billion in 1983–84 or whether some other figures will be true only time will tell.
An article in the Investors Chronicle this week argues that we are dealing with an amount of money which is almost equal to the public sector borrowing requirement. We may reach the stage, in five years, when the public sector borrowing requirement is zero because of our oil revenues. Then there will be a crisis of another order because, if there is no public sector borrowing requirement at a time when money from pension funds and insurance companies amounts to £14 billion, there will be no gilt-edged market left. However, that is an aside.
Precisely what is to happen to this money? Shall we continue as we have, so that the relatively small revenues are

absorbed by the general public finances? Alternatively, shall we use these revenues for the regeneration of British industry? Who knows? If we cannot isolate these revenues and put them to a specific purpose, some of which have been mentioned in the debate, it will be useful to come to an agreement, not with OPEC or the less-developed countries but with the EEC. We might trade our oil in exchange for German investment in Britain, for the transfer of more advanced technology and other assistance, which would produce more practical results than we are experiencing today. All that we are doing with North Sea oil revenues is to import Japanese and European cars and other consumer goods.

Mr. Dalyell: I do not apologise for intervening as I wish to raise a matter of substance—the question of policy towards marginal fields. I do not complain about the Minister of State because I realise his difficulty. This is one of the problems which straddle Government Departments, not least the Scottish Office, the Department of Energy and the Treasury.
The problem causes considerable anxiety to many of my constituents who work in the North Sea. Perhaps I misunderstood, but I thought the Minister said that this problem was being examined by a committee. I do not know to which committee he refers. How is the exploitation of marginal and difficult fields and areas of the North Sea surrounding, for instance, the Forties, which hitherto have been regarded as submarginal, to be handled? Is this all to be done by a policy of royalty remission?
I see the hon. Member for Bedford (Mr. Skeet) shaking his head, but I understood that this problem would be overcome by way of royalty remissions because otherwise, to quote the Minister of State, development would be stultified. Then it was said that there was no hard and fast formula. What do we have to do in these circumstances? Do we make representations to the committee? What financial powers will the committee have, what money will it have, and what weight will it carry with the Treasury? In the final analysis, this is a Government financial responsibility and one that will


almost certainly be decided in Great George Street.

7 p.m.

Mr. Peter Rees: I did not intend to convey that the remission of royalties was the sole instrument available to assist marginal fields. It is one instrument, and it may be a very important one.
As for the committee, I refer the hon. Member for West Lothian (Mr. Dalyell) to the question put down by my hon. Friend the Member for Bedford (Mr. Skeet). In his reply, my right hon. Friend the Secretary of State for Energy said that changes in the oil allowance were included in the Budget proposals, and that it was his intention to invite representatives of the offshore oil industry to join officials in reviewing, without commitment, the way in which marginal fields could best be defined and the impact on them of the Government's offshore oil policies as a whole. I am sure that my right hon. Friend will report in due course to the House if anything constructive emerges from the review. If it concerns budgetary matters, that will probably have to await a further Finance Bill.

Mr. Dalyell: Do I take it that the chairman of the committee is either not known or has not yet been chosen? Some of us would like to know to whom such questions should be addressed.

Mr. Rees: The chairman is an officer of my right hon. Friend's Department. It is not for me to pre-empt the deliberations of the committee, but I am sure that it will be receptive of representations that the hon. Member may wish to make.

Mr. Skeet: We have had three hours to debate the subject, and I am deeply obliged to my hon. and learned Friend the Minister of State for the many arguments that he has advanced in favour of the Government's proposition to increase PRT to 60 per cent.
I think we saw a glimmer of light in the sense that we were told that the problems of the marginal fields would now be referred to the special departmental committee. It was important for us to be told that for the two reasons that I indicated. The first concerns the supply problems that we may encounter in securing the necessary resources later. The second fac-

tor is that marginal fields should be adequately and properly treated and considered. I hope that the whole structure of the tax will be framed from that point of view.
PRT comes in three tranches. The first tranche covers royalties and corporation tax. PRT in that tranche is nil and the Government take is 59 per cent., although it is a matter of discretion. We then come to the tapering tranche in which PRT is 80 per cent. and the Government take goes up to 92 per cent. As I explained to the Minister of State, the structure of PRT is making it very difficult for marginal fields to survive. It makes it difficult for the oil companies to invest in the marginal fields and find the necessary oil.
On the top tranche for the larger field, PRT is 45 per cent., which is a lower imposition than on the tapering tranche.
If the committee is to consider the various ways of dealing with marginal fields, whether it be through remission of royalties or in other ways, it should also look at the structure of the tax itself. My hon. and learned Friend the Minister of State has rightly stated that there must be stability in the tax. He also mentioned that it was possible that the system would be re-examined after several years of operation. We should bear in mind that very few companies are actually paying PRT. Our concern should be in determining where lies the greed. Is it with the companies, or is it with the Government who want to get hold of the money quickly? An important factor for this country at this stage is that it should be able to recover the oil it needs in the years ahead.
Hon. Members have referred to the level of oil company profits, and it has been suggested that they must be having a bonanza. I have before me one of the company reports in which Gulf Oil indicates that its return fell to 8·7 per cent, last year after peaking in 1974 at 14·6 per cent. If one examines the Petroleum Economist concerning the affairs of the Royal Dutch Shell group or other companies, one finds that the rate of return on capital investment is low, and that in some cases it is well below the return on capital of manufacturing industry. That level of return is unsatisfactory if the companies are to be able to put money aside for future investment.
The crucial consideration today is whether the Government are warranted in putting PRT up to 60 per cent., in cutting the oil allowance by half, and in bringing the uplift back from 75 per cent. to 35 per cent. It would have been advisable to consider these matters over a longer period up to 1980, and then to have dealt with this and other matters in the 1980 Finance Bill after the committee had thoroughly examined what could be done for the marginal fields.
I am satisfied that many points have been ventilated in the debate. I hope that the Government will take them into account and that the Treasury will consider them. In the light of that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17 ordered to stand part of the Bill.

Clause 18 ordered to stand part of the Bill.

Clause 19

EXTENSION OF ALLOWABLE EXPENDITURE

Mr. Peter Rees: I beg to move amend-No. 64, in page 8, line 38, leave out from " Kingdom)" to " place " in line 40 and insert:
 and in paragraph (b) of the definition of ' production purposes ' in section 12(1) of that Act, after the words ' in the United Kingdom ' there shall be inserted the words ' or to the '.".

The Second Deputy Chairman (Mr. Richard Crawshaw): With this we may take Government amendment No. 65.

Mr. Rees: I shall refer first to the clause in general terms, bearing in mind the interest expressed in the matter by the hon. Member for West Lothian (Mr. Dalyell).
Section 3 of the Oil Taxation Act defines allowable expenditure in limited terms. It allows only the cost of transporting oil to a landing point in the United Kingdom. This expenditure was important both from the point of view of calculating overall liability to PRT and the amount to which uplift might be applied.
On examination, it was found that this was not entirely fair to those who were extracting oil from the North Sea, because they were charged petroleum revenue tax eventually on the value of the oil at the

point of sale, which might be very different from the point at which the oil was to be landed. Therefore, in clause 19 an extension was proposed which was to extend the deduction to costs incurred up to the point where the oil could reasonably be expected to be delivered.
On further examination of the problem —which is highly technical and complicated—we found that even that did not do full justice to the oil companies, because the point at which the oil might reasonably be expected to be delivered was not necessarily the point at which it would be delivered to a purchaser. It was not the true point of sale by reference to which the PRT liability was actually to be calculated. So the point of these two amendments is to allow the oil companies the costs of transporting oil to a more distant point—that is, the actual point at which they are likely to deliver and could reasonably be expected to deliver the oil to the prospective purchaser.
This is what I referred to on Second Reading as the coincidence point, and the combination of the amendments with clause 19 will, I hope, achieve a fair balance, because the PRT is calculated on the value of the oil at the point at which it is actually delivered to the prospective purchaser. We feel that it is right that the allowable costs should reflect the actual costs of getting the oil to that point and not to some hypothetical earlier point which is not the real point of sale.

Mr. Dalyell: is Britain in any way disadvantaged in this matter in respect of oil refined abroad outside United Kingdom refineries?

Mr. Rees: The short answer is " No, it will not be."

Amendment agreed to.

Amendment made: No. 65, in page 8, line 43, leave out " such place " and insert:
 place at which he could reasonably be expected to deliver it".—[Mr. Peter Rees.]
Question proposed, That the clause, as amended, stand part of the Bill.

Mr. John Garrett: I should be pleased if the Minister of State would elucidate subsection (2), concerning a change in the allowable expenditure affecting licensees where a


licensee buys equipment from another licensee, both operating in the same field. As we understand it, hitherto the cost to the supplier has been an allowable expenditure. But now the cost to the purchaser is being allowed, which could lead to an increase in the allowance—one might well expect it to do so.
What rules govern the price-fixing for the equipment in such a situation? Does this allowance apply if one licensee is the subsidiary of another? What might well be the cost of this new arrangement in respect of licensees buying equipment from one another where the two licensees share the same field?

Mr. Peter Rees: The basis of subsection (2), as the hon. Gentleman indicated, is to permit a person to deduct payments made to a fellow licensee in calculating his liability for PRT. The fellow licensee may either be another company involved contractually in the exploitation of the same block or, as the hon. Gentleman has pointed out, another company which has some shareholding relationship. It may be a wholly-owned subsidiary or a smaller shareholding nexus. Under the Act there is considerable restriction on that process, and the Government feel that it is perhaps an unfair restriction on perfectly legitimate payments.
There is—dare I remind the hon. Gentleman?—an override provision in one of the schedules to the Act which would not permit a payer of a payment to a fellow licensee to claim to deduct a sum in excess of the true market value of the assets acquired or the services provided, so there is, as I am informed, no likelihood of abuse. I am afraid that I cannot give a precise figure for the cost. I do not think that it is easy to arrive at a definite figure, but if the hon. Gentleman really would like it, I shall have a further go with my officials to see whether we can arrive at a credible figure, and I shall write to him if needs be. But these matters are rather speculative.

7.15 p.m.

It has been suggested that the oil companies would probably have been able to circumvent these provisions in the clause anyway, but it is not for me to say how. It was thought better to adopt a more realistic approach which recognises that

in the schedules—which are long and complex—to the Act there is what I call an override provision which would prevent relief being given at more than the true realistic cost of the asset provided or the services provided. I hope that that explanation will reassure the hon. Gentleman on this slightly arcane point.

Mr. Dalyell: Why was an override provision considered necessary in the first place? The Financial Secretary, in a throwaway line, talked about circumvention by the oil companies, and that tends to confirm some of the worries that have been rather widely expressed. Is there a constant ding-doing battle between the Treasury and the Department of Energy on the one hand and the oil com-panics on the other? I think, indeed, that that is the fact of the matter. That is what my right hon. and hon. Friends on the Front Bench and many of the rest of us rather suspect. It is a very unsatisfactory relationship.
Earlier in the debate it was said by a Tory Member " We are the only people who need a BNOC." My hon. Friend the Member for Dunfermline (Mr. Douglas) gave the example of Norway, but in fact oil arrangements in other parts of the world are on a totally different footing. In Brazil, there is Petrobras, in Indonesia, there is Pertamina, and the Arabs have their own set-ups. We are somewhat unique in that our Government have not got the kind of set-up built into production which many of the other major oil-producing countries in OPEC have.
Although this matter sounds very technical, it seems to me to be the tip of an iceberg if there is this constant pressure going on to circumvent, one way or another, what is justifiable taxation. There is a very wide worry in Scotland, including along the whole of the coast among those who work in the oil industry, that we are not getting our fair share. Having taken part in some of the debates on the Scotland Act, I think that the Minister of State will acquit me of having any Scottish nationalist tendencies. My hon. Friend the Member for West Stirlingshire (Mr. Canavan) accused me of many things in the past and no doubt will do so in the future, but he will not accuse me of Scottish National Party tendencies. Not only the SNP but a great many other people are deeply concerned, if inarticulately, that we are not getting quite


as large a share as we ought to be. On this highly technical question, therefore, it seems that more explanation is required, and I wonder whether the Minister of State will comment.

Mr. Peter Rees: I am always happy to respond to the hon. Gentleman's invitations. Dare I say that I should be the last person to regard him as in any way tainted with Scottish nationalism, although I know equally well his deep concern for matters Scottish in the best and broadest sense. I suggest that his question should, however, have been addressed to his right hon. Friend the Member for Llanelli (Mr. Davies) who, when a member of the Labour Government, had a considerable hand in that matter, I suspect. I mean that in no spirit of dispraise.

Mr. Denzil Davies: Mr. Denzil Davies indicated dissent.

Mr. Rees: Perhaps the Oil Taxation Act was passed before his time, but in any event the right hon. Gentleman was present during its early years and he could, I imagine, give at first hand a more authentic explanation of why the override provisions were introduced.
I turn now to the more general point raised by the hon. Member for West Lothian (Mr. Dalyell). I am sure that it would not be proper for me now, and certainly not the question immediately before the Committee, to debate whether North Sea oil should be exploited exclusively through some State oil company like BNOC or by a combination of State oil company and individual companies. That is a matter of general principle which hardly arises here, and I might well be out of order if I were tempted into it.
However, it is right to say that there is a constant process of adjustment both of the interests of the oil companies and, if I may put it in a rather grandiose way, the interests of the British people, as safeguarded by this Government and, I dare say, to the best of their ability by the previous Government. This process of adjustment involves looking at these fine points, which may, as the hon. Gentleman suggests, at the end of the day raise important issues of principle.
As to the reason why this provision was originally inserted in the schedule to the Oil Taxation Act, I suggest again, with

suitable modesty, that the right hon. Member for Llanelli might give a more satisfactory answer. But, regrettably, it has been found in other fields that taxpayers who feel a little oppressed by the weight of any particular system or item of taxation take such measures as are legitimately open to them—some hon. Members would say illegitimately—to adjust their liabilities, by pricing measures and so forth.
I think that, perhaps drawing on their experience in other fields and without aiming particularly at the oil companies or expressing by implication any view of them and their fiscal morality, the Government at the time inserted this provision in the orginal Act. I think that that is the short and simple answer, and I hope that it reassures the hon. Gentleman.

Question put and agreed to.

Clause 19, as amended, ordered to stand part of the Bill.

Clause 20 ordered to stand part of the Bill.

Clause 21

TAXATION OF BRITISH NATIONAL OIL CORPORATION

Question proposed, That the clause stand part of the Bill.

Mr. John Horam: This clause makes another quite important change in the fiscal regime to which we are subjecting the companies —in this case, of course, the British National Oil Corporation. I do not wish to say too much about it, and we on this side do not intend to oppose the change, but on such an important matter it would be wrong to allow the clause to pass entirely without comment. I see the hon. Member for Bedford (Mr. Skeet) in his place and apparently ready to say a few words himself.
The proposition here is that BNOC be subject to petroleum revenue tax for the first time. This is a significant change in principle. As I understand it, the argument in favour is that BNOC should be on the same footing as other companies operating in this field. Although that has some merit as a principle in itself, I think


that it is one for which the oil companies have always argued, and I am not sure that it is right to agree to it simply as something about which the companies have felt strongly. I rather suspect that, whatever principle one conceded to them, they would always ask for more and be critical of what they would regard as the special privileges of BNOC.
On the other hand, I accept that when BNOC is in partnership with an independent company and it comes to the taking of investment decisions, there is some practical merit in having the same fiscal regime for both BNOC and the independent company, quite apart from the more general principle of their operating on the same footing. I understand those to be the arguments in favour.
On the other hand, the contrary argument—that is, the argument in favour of maintaining the present position—is clear, namely, that in the final analysis the profits of BNOC go to the Government just as the tax will go to the Government, so that it is merely an accounting change and the net result is not significantly affected.
I think that our position on the matter is that we doubt that the change was really worth making, but since the Government propose to make it we see no real sense in opposing it at this stage.
I do not know—perhaps the Financial Secretary can help us—when the petroleum revenue tax will affect BNOC. I imagine that it will not be for some years yet, and I hope that the hon. Gentleman can tell us in practical terms when the corporation will be so affected.
Perhaps we may discuss the wider question of BNOC briefly in this debate since this is the only specific opportunity we have to do so. The Government are undertaking a fairly comprehensive review of the corporation's operations, and they have indicated that the result of that review will be made known, presumably to the House, before the Summer Recess. That will be literally in the next two weeks or so, I imagine, and I should like that confirmed. It is important that we know what the general situation will be before we go into recess for the summer.
On the general question, the Conservatives made their position clear when they were on these Benches and the right hon.
Member for Bridgwater (Mr. King) was their spokesman. Their objection was to what they described as the de facto regulatory functions of BNOC as opposed to the commercial activities, because they believed that the current situation gave BNOC some special privileges and there was also an overlap between the regulatory or advisory functions and the commercial activities of BNOC.
I imagine that right hon. and hon. Members now on the Government Benches include in that criticism the fact that BNOC has a seat on the operating committees in the North Sea. My hon. Friend the Member for Dunfermline (Mr. Douglas)—he is not in the Chamber at the moment—spoke of the importance of this from the point of view of the oil companies. He said that it was more important to them, they regarded it as a more significant advantage for BNOC, and they were more worried about it than about the sort of fiscal regime which they or BNOC had to face. That may well be true.
The point here is that the information which BNOC and ultimately the Government obtain from the seat on the operating committees is extremely valuable to the Government's general comprehension of what is happening in the North Sea and therefore to their understanding of the right level at which to tax it, for example. I do not see how one could gain information about these things in any other way. Perhaps one could convert the BNOC person on the operating committees into a Department of Energy person, but I am not sure that in practice one would have the people available to do that. I do not imagine that one could staff the system up in the way required without at the same time reducing the availability of people for BNOC, and in practical terms I cannot feel that that would be an adequate substitute for having a BNOC representative on the operating committees.
There are two other points to be borne in mind in this context. If one generally weakens BNOC, one weakens its function in controlling the general oil situation in the North Sea. We know, for example, that the Government at present want to influence that situation and are trying to influence it by asking BNOC to renegotiate its contracts with United States customers with a view to keeping


more of the oil in this country. If one weakens BNOC by in some way diminishing its powers and influence, one will affect that side of things, namely, the right of the Government to influence the amount of oil going out of the country and the amount remaining in.
Secondly, BNOC is now beginning to establish contacts with other State oil companies elsewhere in the world, for example, in Brazil, Venezuela and some others. We all know how the world operates in this respect, and I think it quite understandable that other State oil companies and Governments incline to take more notice of a State concern than they might of an independent concern.
When I was involved not in oil matters but in transport and I was engaged in efforts to win contracts for British companies abroad, I found that people overseas often wanted to know why we did not give a specific Government guarantee behind a British contractor such as Wimpey. They could not understand when we said that it was a private organisation with its own sources of finance and that we did not need to give it any further guarantee. They were puzzled about that and considered it to be a disadvantage of the British way of operating.
7.30 p.m.
If the position of the BNOC is weakened in the United Kingdom, it will find it more difficult to build on the experience and expertise that has been gathered in the short time that it has been in existence, with the result that it will not do as well in overseas contracts as we hope.
When the Government consider these matters, I hope that they will bear in mind all aspects of national interest and will not make changes based merely on preconceived ideas of how a nationalised industry or State company should operate.
I understand that the Financial Secretary may not find it possible to reply to all the matters that have been raised. Possibly a spokesman from the Department of Energy should be present, that Department being at least partly responsible for these matters, the Financial Secretary being responsible, presumably, for the fiscal regime that BNOC faces.
The Financial Secretary may be able to enlighten us on when we are to hear more fully about these matters of national concern.

Mr. Skeet: The purpose of the clause is to make the BNOC liable to petroleum revenue tax. I must resist the temptation to talk at length about the corporation because of the review that is likely to appear fairly shortly and because it would be out of place to do so in this debate.
During the passage of the Petroleum and Submarine Pipe-lines Bill in 1975 we argued whether the corporation should be made liable to PRT. It was argued by members of the Labour Government that it was unreasonable to expect a State corporation to be liable to tax. I am glad that Labour Members have now accepted the Government's view that the corporation should be treated in the same way as other companies and all the other producers in the North Sea and that it should have no special privileges. That is a great admission on their part.
If the clause is enacted, it will not be particularly profitable for the Government because the corporation will not be liable to any PRT until about 1982 at the earliest. I hope that the Treasury will bear in mind that royalties, rentals and other such payments are paid into the national oil account for the benefit of the corporation. Surely that practice should be stopped. Whether it is within the contemplation of the Government to abolish the national oil account under section 40 of the 1975 Act or to keep it is another matter, but it would be reasonable, if the Government wanted to secure the necessary funds for their development purposes, for royalties paid by the oil companies and by the corporation as well to be used for general revenue purposes.
I content myself by saying that I fully approve of the clause. I shall confine my remarks on future occasions to modifications of the terms and duties of the corporation. On this occasion, I feel that it would be inappropriate to do so as we have no idea what the Government propose to do with the corporation. We do not know whether they propose to modify it, to take away its advisory powers and special privileges, or to remove it altogether as a corporation.

Mr. Dalyell: I do not rebuke the Secretary of State for Energy for not being in the Chamber. The right hon. Gentleman may have other things to do. However, I am glad to see the presence of the Under-Secretary of State for Energy. Some of us think that Department of Energy and Treasury affairs have been so interwoven in the debate that it might be better in future for representatives of the Department of Energy to be present.
I have a personal interest as a number of my constituents work at BNOC, Glasgow. We understand that the Government are entitled to a review, but they should understand that they must be fair to a substantial number of employees who, after all, are their own employees. Those who work at BNOC, Glasgow are wondering about their jobs. I am not a Glasgow Member, but some of the corporation's employees travel to my constituency. There is considerable and natural anxiety about the future. The Government Whip, the hon. Member for Edinburgh, West (Lord James Douglas-Hamilton), knows full well what I mean.
The sooner that the review is finished and produced and consultations have taken place—the hon. Member for Bedford (Mr. Skeet) knows what I am talking about—the better. There are those who must make decisions about their own lives. I emphasise the argument that was advanced earlier by my hon. Friend the Member for Dunfermline (Mr. Douglas). There are some extremely skilled people employed by the corporation. Some of those employees have come from Burmah. These people could easily obtain jobs in other parts of the world. It behoves the Government to make their decisions fairly quickly in their own interests.
Surely the corporation is not in a deep sense like other companies and to be treated like other companies. It is one of the vehicles available to any Government to deal with foreign Governments in this area of activity. The Under-Secretary of State for Energy may gainsay this if he wishes, but I doubt very much whether, without the corporation, there are resources in his Department to perform many of the tasks that hon. Members on both sides of the Committee have been suggesting should be carried out by the Department of Energy and the Treasury. If that is denied and it is said

that the Department is fully staffed and is able to cope, I shall be rather surprised. Surely the corporation is an integral part of the Department.
It seems madness to dismantle the corporation and at the same time to sell BP shares. It is no good saying " Your Government did it ". That is true, but some Labour Members did not like that action being taken by the Labour Government and they said so at the time. However, the Labour Government did not put in jeopardy the Government's controlling interest in BP. To do so now would be a disaster. That is the attitude of the trade unions at Grangemouth, which are deeply affected.

Mr. Skeet: We have learnt from Montecatini Spa of Italy that a controlling influence can be 15 per cent. of the shares. There is a controlling syndicate and ENI is one of the companies. There are other enterprises. However, a 15 per cent. interest is sufficient to control the company. If there is control with a shareholding below 50 per cent.—I am not suggesting that the BP holding will go very much below 50 per cent. as I do not know what is in the Government's mind—surely that is sufficient. Another example is CFP, the French company. The French Government's investment is 35 per cent. Is that not enough?

Mr. Dalyell: Montecatini Spa is not that great a success. For four years in a previous incarnation I was a member of the energy committee of the European Assembly. My Italian colleagues across the political spectrum—from the Christian Democrats on the right to those such as Alterio Spinelli from the Communist Party—were for ever telling the Commission how unsatisfactory the oil refinery set-up and many other aspects of the oil industry were in Italy. I would not take the Italian oil industry as a model for anything. Some of us would think it deeply unsatisfactory if the controlling interest in BP were taken out of the hands of the British Government.

The Financial Secretary to the Treasury (Mr. Nigel Lawson): I was pleased that the hon. Member for Gateshead, West (Mr. Horam), in initiating this brief debate on clause stand part, made it clear that the Opposition did not wish to oppose the bringing of BNOC into the PRT net.


He acknowledged that BNOC should be on all fours with other oil companies. That is our view too. It is not new. It is one that we expressed in Opposition when the Petroleum and Submarine Pipelines Bill was considered in 1975. It was not because the oil companies wanted BNOC to be subject to PRT that we decided it was right to put it on all fours with other companies. There was something particularly odd about the previous position. It was a half way house. The hon. Gentleman suggested that the State oil company should not be liable to tax. However, it has always been liable to corporation tax, so there was a curious half way situation. It was liable to corporation tax but not PRT. Now, like any other oil company, it will be liable to both.
The hon. Gentleman asked me when BNOC would pay PRT. That is difficult to say. It depends on a great many imponderables. My hon. Friend the Member for Bedford (Mr. Skeet) suggested 1982. That is as good a guess as anyone can make.
The hon. Member for Gateshead, West went on to deal with wider questions that were also touched on by my hon. Friend the Member for Bedford and the hon. Member for West Lothian (Mr. Dalyell). All three hon. Members referred to the future of BNOC. The hon. Member for Gateshead, West also mentioned British Petroleum. Much as I should like to go into that matter, it would be out of order to do so. That question was debated last Friday. It was a pity that the hon. Gentleman was not present to hear the debate on North Sea oil that was initiated by my hon. Friend the Member for Gosport (Mr. Viggers). The question of the disposal of BP shares was debated at that point. I made plain my view and that of the Government. If Hansard were printed, the hon. Gentleman would be able to discover what that view was. However, he should have no fears on that score.
As for the future of BNOC, I am at a disadvantage as my right hon. Friend the Secretary of State for Energy, who is the Minister responsible, is conducting a review of BNOC. It is not yet completed, and it would not be right to prejudge its results. However, I take the point that the hon. Gentleman wishes to make that the results of the review should

be put to the House at the earliest possible moment.
The question whether BNOC should have seats on the operating committees was also mentioned. That subject, too, is under review, and there are various options. Even though the Department of Energy may not be equipped at present to deal with these functions—I make a hypothetical case as the review is not yet completed—if it were decided that they should be carried out by the Department of Energy rather than by BNOC, the necessary manpower could be recruited if it were not already available in the Department. All those options are now open as a result of this clause.
It is equitable and sensible that BNOC should be in the same position as every other oil company. That is of assistance when there are possibilities of joint ventures with other oil companies that are liable to tax. It is also obviously sensible when thinking of all the options that are open to BNOC. One future option is introduction of private capital into BNOC as well as the extent to which there may be changes in the ownership of some, if not all, of the assets of BNOC. Those options are open provided that BNOC has exactly the same tax regime and is treated in exactly the same way under tax law as other oil companies. That is why we put this proposition in the Bill. It makes no difference, one way or the other, to the yield to the Exchequer. That is not at issue. The point is the principle and practicality of having the same tax regime for the BNOC as for all other oil companies, whether in the North Sea or elsewhere.

Question put and agreed to.

Clause 21 ordered to stand part of the Bill.

Clause 22

CAPITAL TRANSFER TAX: EXTENSION OF TRANSITIONAL RELIEF

7.45 p.m.

Question proposed, That the clause stand part of the Bill.

Mr. Denzil Davies: Clause 22 comes under the heading
 Miscellaneous and Supplementary ".
That may seem rather technical and uninteresting.
The Opposition register their dissent to this clause. They see it as a forerunner of


numerous clauses to come next year after the Chancellor has carried out his review of capital transfer tax. As a result of clause 22(1) we shall see a gradual movement towards a substantially changing capital transfer tax in relation to trusts and settlements.
The settlements mentioned in clause 22(1)(a) are discretionary settlements. There may be others. Discretionary settlements are in the main tax avoidance devices. Since the establishment of capital transfer tax there has been a gradual demise of new discretionary settlements. Here we see a slow resurrection of the discretionary settlement.
If the intention is to do away with the periodic charge and make other modifications, we may see the resurrection of the tax avoidance device—the discretionary settlement—when the Chancellor carries out his review of capital transfer tax That will be a slight irony. Income tax is being reduced at the top rates to encourage drive and initiative and enable people to establish businesses. We may find that there is an increase in tax avoidance by means of discretionary settlements as a result of this clause.
Clause 22(1)(b) extends the date for the capital distributions out of settlements —not just discretionary settlements. I remember the debates on capital distributions in Committee five and six years ago. The then Opposition argued strongly that tax should not be applied to settlements made before the tax was introduced—as if somehow settlements should be immune from the general yearly changes of taxation. Indeed, that argument won a concession, as there is now a transitional period. That period is now to be extended.
We are now hearing the first few shots in the battle that is to come, as the Government relax the rules for taxation of settled estates, try to take us back to a different regime, and free the taxation of capital from what we consider to be the sensible rules introduced under the previous capital transfer tax provisions. No doubt the hon. and learned Gentleman will respond. I am not really asking him questions but saying that we shall vote against the clause, because we see it as a forerunner of much that is to come next year.

8 p.m.

Mr. Peter Rees: I am always happy to respond to the right hon. Member for Llanelli (Mr. Davies). I think that his memory serves him correctly but I suspect that his hand has lost its cunning to a small degree. I have no doubt that when he settles back comfortably into private practice at the Bar it will re-acquire the cunning that it had before 1975, or whenever it was that he became a distinguished ornament of the last Administration.
The right hon. Gentleman is quite right in his broad description of clause 22 which is designed, as I am sure the Committee will have divined, to extend the transitional relief from the periodic charge for settlements without an interest in possession. I cannot now recall whether the periodic relief was introduced as a concession to pressure from the Conservative Benches in the Standing Committee which debated the capital transfer tax or whether it came from his own fertile mind, but it was designed to provide transitional relief until 1 April 1980. I must draw on my own memory here—I know that the right hon. Gentleman will correct me if I am wrong—but I suspect that the reason is that he and his right hon. Friends recognised in their heart of hearts that the new fiscal framework, the new capital tax which they had devised, bore a little hardly, perhaps, on discretionary settlements.
I regard the right hon. Gentleman, on the whole, as a very unprejudiced and candid hon. Member but I believe that, exhibiting one of his few prejudices—or perhaps here he is merely deferring to the prejudices of his hon. Friends below the Gangway—he feels that practically all settlements are great vehicles for tax avoidance. [Interruption.] The right hon. Gentleman demurs at that. Perhaps he will make a reservation in favour of strict settlements.

Mr. Denzil Davies: I made my reservation at the beginning. I made it quite clear that I was talking of discretionary settlements, and 90 per cent. of them are tax avoidance devices.

Mr. Rees: I am glad to be able to clear away some of the ground work. I always like to establish a little common ground between the right hon. Gentleman and myself. This perhaps will ease our task when we come to debate the reforms


to capital transfer tax that we hope to put in hand. We may take it, then, that we shall not have too much difficulty from the right hon. Gentleman and his hon. Friends about a regime for strict settlements—settlements where there is a life interest only.
The right hon. Gentleman, exhibiting one of his few prejudices, has come to regard discretionary settlements as vehicles for tax avoidance.

Mr. Denzil Davies: There are no discretionary settlements.

Mr. Rees: I think that the right hon. Gentleman is a little premature to suggest that there are no discretionary settlements. It is wrong for me to draw on my experience before 8 May, but I suspect that there are still a few. I say to the right hon. Gentleman—and, indeed to the rest of the Committee—that discretionary settlements have other advantages than purely fiscal advantages. They have a degree of flexibility that is not always to be found in all forms of settlement. There are perfectly reputable reasons—using the word " reputable " in terms, perhaps, of the right hon. Gentleman's rather narrow definition—for adopting discretionary settlements which might, although I doubt it, commend themselves to Labour Members.
I also remind the right hon. Gentleman and the Committee that we are not just concerned with discretionary settlements but with settlements without an interest in possession. Although this may seem a rather arcane point, it is a point of some importance, as I shall hope to demonstrate in a moment. I apologise for appearing to weary the Committee with technicalities in a highly technical field, but a settlement without an interest in possession may cover a wide range of settlements that would not in normal parlance be regarded as discretionary settlements. For example, an accumulating settlement may also be covered.
But I must return to the theme of the debate and say how well I recall the debates in Committee Room 10 that went on night after night on the structure and design of capital transfer tax. The right hon. Gentleman and his right hon. and hon. Friends felt it right to provide a transitional period, so as to give settlors—or, perhaps more exactly, trustees-

caught in the toils of this unattractive tax, a chance to readjust to settlements, if they legitimately could, so as to create settlements with an interest in possession, and thus avoid the periodic charge.
I am sure that the Committee is conversant with the way in which the periodic charge works, whether it be a decennial periodic charge or an annual one. I remind the Committee and the right hon. Gentleman—who perhaps did not entirely grasp the point—that subsection (2) is aimed at dealing with the case of settlements without an interest in possession which have foreign resident trustees, because they are in a special position. The right hon. Gentleman and his friends thought it right that there should be this transitional period, which was to run out on 1 April 1980. There was a tapering scale of relief to give this chance for trustees to make the necessary adjustments.
There are two reasons why we have felt it right to extend this transitional period from 1 April 1980 to 1 April 1982. The first is a relatively uncontroversial one and will, I hope, commend itself to each side of the Committee. It may, perhaps, enable the right hon. Gentleman to extricate himself from his untenable position and not press the matter to a Division. I may not have presented my arguments with sufficient lucidity, but he may perhaps recognise the point that I am attempting to get across to him and to his hon. Friends.
The reason why I spent a little time in discoursing on what is meant by an interest in possession is that it is crucial for determining whether there is to be a periodic charge. One would have thought. therefore, that the previous Administration would have given certain thought to what was meant by an interest in possession, because it is a crucial concept.

Mr. Denzil Davies: They did.

Mr. Rees: The right hon. Gentleman murmurs " They did." I can only say that I pressed the right hon. Gentleman and his right hon. Friend the Member 'or Ashton-under-Lyne (Mr. Sheldon) on many occasions. Indeed, with a certain temerity I tabled an amendment which attempted to define in comprehensive terms what was meant by an interest in possession. The right hon. Gentlemen


sheered away from that. The best they were able to do was to instruct the Inland Revenue to produce a press release as to what they understood this important concept to mean. It is fundamental to the operation of capital transfer tax. Therefore one would have thought they would devote considerable care to the construction of this concept. They put out a press release on the basis of which, I understand, many trustees have adjusted their settlements.
This view of the Inland Revenue has recently been challenged in the courts in the case of the Commissioners of Inland Revenue v. Pearson. Both the Chancery Division and the Court of Appeal have found against the view which found favour with the Inland Revenue, which was presumably the basis on which the tax had been constructed. I am sure that the right hon. Gentleman, if he pays a little more attention to my argument—dull and laborious though it may be—will recognise that in the light of this decision it is necessary to re-think these provisions. It may be that the House of Lords will give permission to the Inland Revenue to take this case further, but at the moment application has been turned down. Everybody is left in a state of uncertainty and confusion. I do not think that I have to accept any blame for this, because it is a point that I have raised on numerous occasions with the previous Administration.
I am sure that the right hon. Gentleman, on reflection, will realise that this position, standing on its own, is a good enough reason for extending the transitional period so that some clarification can be sought, either from the House of Lords or possibly through legislation—inevitably, perhaps, through next year's Finance Bill.
But there is a more fundamental reason why we believe that the transitional period should be extended. Here I do not expect to carry Opposition Members with me. I am sure that what I have to say will commend itself to my hon. Friends. We have considerable reservations—expressed

on many occasions—about the structure and the rates of capital transfer tax. My right hon. and learned Friend pointed out in his Budget speech—and I know that this commended itself to my hon. Friends—that it is necessary that we should undertake a very thorough review and re-examination of this tax. Hon. Members on each side of the Committee will realise that it is a tax of considerable complexity and will require considerable thought and investigation.

It will be impossible, I regret to say, to produce to the House before the next Finance Bill the necessary measures to make it a bearable tax—the kind of tax with which all the commercial, agricultural and individual interests of this country can live in the years to come. Provided we achieve a little goodwill from Opposition Members I am sure that we shall be able to find a common basis on which to humanise the tax. [Interruption.] The right hon. Member for Llanelli is showing that he has a closed mind on the subject, and I am sorry. On the whole the right hon. Gentleman shows himself to be remarkably free of prejudice. The matter evidently touches some deep and unattractive core in his make-up. I do not wish to pursue the right hon. Gentleman's prejudices. They are not prejudices that will commend themselves to my right hon. and hon. Friends.

8 p.m.

Those are two substantial reasons, one of which is relatively unpartisan. On that basis I hope that the Committee will see that there is good sound sense and every reason, both in equity and in sense, why the transitional period should be extended until 1982. It is a very modest measure and I am sure that on reflection the right hon. Gentleman will realise that he will only be parading his prejudices if he presses the point to a Division.

I hope that I carry the Committee with me and that it will accept, without a Division, the modest measure of relief contained in clause 22.

Question put, That the clause stand part of the Bill.

The Committee divided: Ayes 199 Noes 144.

Division No. 49]
AYES
[8.01 p.m.


Aitken, Jonathan
Atkins, Rt Hon H. (Spelthorne)
Benyon, W. (Buckingham)


Alexander, Richard
Baker, Nicholas (North Dorset)
Berry, Hon Anthony


Alton, David
Beaumont-Dark, Anthony
Best, Keith


Arnold, Tom
Beith, A. J.
Bevan, David Gilroy


Aspinwall, Jack
Benyon, Thomas (Abingdon)
Biffen, Rt Hon John




Biggs-Davison, John
Hawkins, Paul
Porter, George


Blackburn, John
Hawksley, Warren
Powell, Rt Hon J. Enoch (S Down)


Bottomley, Peter (Woolwich West)
Heddle, John
Prior, Rt Hon James


Boyson, Dr Rhodes
Hogg, Hon Douglas (Grantham)
Proctor, K. Harvey


Bright, Graham
Holland, Philip (Carlton)
Rathbone, Tim


Brinton, Tim
Hooson, Tom
Rees, Peter (Dover and Deal)


Brooke, Hon Peter
Howe, Rt Hon Sir Geoffrey
Rees-Davies, W. R.


Brown, Michael (Brigg &amp; Sc'thorpe)
Howells, Geraint
Renton, Tim


Bruce-Gardyne, John
Hunt, John (Ravensbourne)
Rhodes James, Robert


Buchanan-Smith Hon Alick
Irving, Charles (Cheltenham)
Ridley, Hon Nicholas


Budgen, Nick
Jessel, Toby
Roberts, Michael (Cardiff NW)


Bulmer, Esmond
Jopling, Rt Hon Michael
Ross, Stephen (Isle of Wight)


Burden, F. A.
Kaberry, Sir Donald
Ross, Wm. (Londonderry)


Cadbury, Jocelyn
Kilfedder, James A.
Rost, Peter


Carlisle John (Luton West)
Kimball, Marcus
Sainsbury, Hon Timothy


Carlisle, Kenneth (Lincoln)
King, Rt Hon Tom
St. John-Stevas, Rt Hon Norman


Chalker, Mrs Lynda
Knight, Mrs Jill
Shaw, Michael (Scarborough)


Channon, Paul
Knox, David
Shelton, William (Streatham)


Chapman, Sydney
Lamont, Norman
Shepherd, Colin (Hereford)


Churchill, W. S.
Lang, Ian
Shepherd, Richard(Aldridge-Br'hills)


Clark, Dr William (Croydon South)
Langford-Holt, Sir John
Sims, Roger


Clegg, Walter
Lawson, Nigel
Skeet, T. H. H.


Cockeram, Eric
Le Marchant, Spencer
Speed, Keith


Colvin, Michael
Lester, Jim (Beeston)
Speller, Tony


Cope, John
Lloyd, Ian (Havant &amp; Waterloo)
Spence, John


Corrie, John
Lloyd, Peter (Fareham)
Spicer, Michael (S Worcestershire)


Costain, A. P.
Lyell, Nicholas
Squire, Robin


Cranborne, Viscount
Macfarlane, Neil
Stainton, Keith


Critchley, Julian
MacGregor, John
Stanbrook, Ivor


Crouch, David
MacKay, John (Argyll)
Steel, Rt Hon David


Dean, Paul (North Somerset)
McNair-Wilson, Michael (Newbury)
Stewart, Ian (Hitchin)


Dodsworth, Geoffrey
McQuarrie, Albert
Stewart, John (East Renfrewshire)


Dorrell, Stephen
Madel, David
Stokes, John


Dover, Denshore
Major, John
Stradling Thomas, J.


Dykes, Hugh
Marshall, Michael (Arundel)
Tebbit, Norman


Eggar, Timothy
Marten, Neil (Banbury)
Temple-Morris, Peter


Elliott, Sir William
Mates, Michael
Thorne, Neil (llford South)


Eyre, Reginald
Mather, Carol
Thornton, Malcolm


Fairbairn, Nicholas
Maude, Rt Hon Angus
Townsend, Cyril D. (Bexleyheath)


Fairgrieve, Russell
Mawby, Ray
van Straubenzee, W. R.


Faith, Mrs Sheila
Mawhinney, Dr Brian
Viggers, Peter


Fenner, Mrs Peggy
Meyer, Sir Anthony
Waddington, David


Fisher, Sir Nigel
Miller, Hal (Bromsgrove &amp; Redditch)
Wainwright, Richard (Colne Valley)


Fletcher, Alexander (Edinburgh N)
Mills, lain (Meriden)
Wakeham, John


Fookes, Miss Janet
Mills, Peter (West Devon)
Waldegrave, Hon William


Fowler, Rt Hon Norman
Molyneaux, James
Walker, Rt Hon Peter (Worcester)


Fox, Marcus
Montgomery, Fergus
Walker-Smith, Rt Hon Sir Derek


Freud, Clement
Moore, John
Wall, Patrick


Gardiner, George (Reigate)
Morris, Michael (Northampton, Sth)
Waller, Gary


Garel-Jones, Tristan
Morrison, Hon Peter (City of Chester)
Ward, John


Glyn, Dr Alan
Murphy, Christopher
Watson, John


Goodlad, Alastair
Myles, David
Wells, Bowen (Hert'rd &amp; Stev'nage)


Gorst, John
Neale, Gerrard
Wheeler, John


Gower, Sir Raymond
Newton, Tony
Wickenden, Keith


Gray, Hamish
Onslow, Cranley
Wilkinson, John


Griffiths, Eldon (Bury St Edmunds)
Page, John (Harrow, West)
Williams, Delwyn (Montgomery)


Griffiths, Peter (Portsmouth N)
Page, Rt Hon R. Graham (Crosby)
Winterton, Nicholas


Grist, Ian
Parris, Matthew
Wolfson, Mark


Grylls, Michael
Patten, Christopher (Bath)



Gummer, John Selwyn
Pattie, Geoffrey
TELLERS FOR THE AYES:


Hamilton, Hon Archie (Eps'm&amp;Ew'll)
Penhaligon, David
Lord James Douglas-Hamilton and


Hamilton, Michael (Salisbury)
Percival, Sir Ian
Mr. Robert Boscawen.


Hannam, John
Pollock, Alexander





NOES


Adams, Allen
Cocks, Rt Hon Michael (Bristol S)
Dobson, Frank


Allaun, Frank
Coleman, Donald
Dormand, Jack


Armstrong, Rt Hon Ernest
Concannon, Rt Hon J. D.
Douglas, Dick


Ashton, Joe
Conlan, Bernard
Dunwoody, Mrs Gwyneth


Atkinson, Norman (H'gey, Tott'ham)
Cowans, Harry
Eadie, Alex


Barnett, Rt Hon Joel (Heywood)
Craigen, J. M. (Glasgow, Maryhill)
Eastham, Ken


Benn Rt Hon Anthony Wedgwood
Cryer, Bob
Ellis, Raymond (NE Derbyshire)


Bidwell, Sydney
Cunliffe, Lawrence
Evans, loan (Aberdare)


Booth, Rt Hon Albert
Cunningham, George (Islington S)
Evans, John (Newton)


Brown, Hugh D. (Provan)
Dalyell, Tam
Ewing, Harry


Brown, Robert C. (Newcastle W)
Davidson, Arthur
Faulds, Andrew


Brown, Ronald W. (Hackney S)
Davies, Rt Hon Denzil (Lianelli)
Field, Frank


Buchan, Norman
Davies, E. Hudson (Caerphilly)
Flannery, Martin


Callaghan, Rt Hon J. (Cardiff SE)
Davis, Terry (B'rm'ham, Stechford)
Fletcher, Ted (Darlington)


Callaghan, Jim (Middleton &amp; P)
Deakins, Eric
Foot, Rt Hon Michael


Campbell-Savours, Dale
Dean, Joseph (Leeds West)
Ford, Ben


Canavan, Dennis
Dempsey, James
Foster, Derek


Cartwright, John
Dewar, Donald
Freeson, Rt Hon Reginald


Clark, Dr David (South Shields)
Dixon, Donald
Garrett, John (Norwich S)







Garrett, W. E. (Wallsend)
Lewis, Ron (Carlisle)
Rowlands, Ted


Gilbert, Rt Hn Dr John
Lofthouse, Geoffrey
Shore, Rt Hon Peter (Step and Pop)


Ginsburg, David
McCartney, Hugh
Skinner, Dennis


Golding, John
McDonald, Dr Oonagh
Smith, Rt Hon J. (North Lanarkshire)


Gourlay, Harry
McElhone, Frank
Snape, Peter


Graham, Ted
McGuire, Michael (Ince)
Spearing, Nigel


Grant, George (Morpeth)
McKay, Allen (Penistone)
Spriggs, Leslie


Grant, John (Islington C)
McKelvey, William
Stallard, A. W.


Hamilton, W. W. (Central File)
McMillan, Tom (Glasgow, Central)
Stewart, Rt Hon Donald (W Isles)


Harrison, Rt Hon Walter
McNally, Thomas
Stoddart, David


Haynes, Frank
Marshall, David (Gl'sgow.Shettles'n)
Stott, Roger


Healey, Rt Hon Denis
Marshall, Dr Edmund (Goole)
Strang, Gavin


Heffer, Eric S.
Mason, Rt Hon Roy
Thomas. Dafydd (Merioneth)


Hogg, Norman (E Dunbartonshire)
Meacher, Michael
Thorne, Stan (Preston South)


Holland, Stuart (L'beth, Vauxhall)
Miller, Dr M. S. (East Kilbride)
Urwin, Rt Hon Tom


Home Robertson, John
Morris, Rt Hon Charles (Openshaw)
Wainwright, Edwin (Dearne Valley)


Homewood, William
Morton, George
Wellbeloved, James


Hooley, Frank
Newens, Stanley
Welsh, Michael


Horam, John
Orme, Rt Hon Stanley
White, James (Glasgow, Pollok)


Hughes, Mark (Durham)
Palmer, Arthur
Whitehead, Phillip


Hughes, Roy (Newport)
Park George
Whitlock, William


Johnson, James (Hull West)
Powell, Raymond (Ogmore)
Wigley, Dafydd


Jones, Rt Hon Alec (Rhondda)
Prescott, John
Wilson, Gordon (Dundee East)


Jones, Barry (East Flint)
Radice, Giles
Wilson, Rt Hon Sir Harold (Huyton)


Lambie, David
Richardson, Miss Jo
Winnick, David


Lamborn, Harry
Roberts, Albert (Normanton)
Woodall, Alec


Lamond, James
Roberts, Ernest (Hackney North)



Leadbitter, Ted
Robertson, George
TELLERS FOR THE NOES.


Leighton, Ronald
Rooker, J. W.
Mr. James Hamilton and


Lestor, Miss Joan (Eton &amp; Slough)
Ross, Ernest (Dundee West)
Mr. James Tinn.

Question accordingly agreed to.

Clause 22 ordered to stand part of the Bill.

Clause 23

DEVELOPMENT LAND TAX

Question proposed, That the clause stand part of the Bill.

Mr. Denzil Davies: I want to raise, very briefly, a number of matters on clause 23. First, I seek clarification, because as time goes by my memory of development land tax is fading. Perhaps the Financial Secretary can clarify one or two basic points.
As I read the clause, quite apart from reducing the top rate of tax from 80 per cent. to 60 per cent. and removing the 66⅔ per cent. rate, it raises the threshold —if that is the right way of describing it —for exemption from £10,000 to £50,000. I gather that that means that £50,000 worth of development value will be completely free of tax. Can the Financial Secretary confirm that when he replies? Although I appreciate that any increase in current use value would be subject to capital gains tax, perhaps the Financial Secretary can tell us whether the whole £50,000 is free of tax, or whether capital gains tax applies to it—[Interruption.] Perhaps he will also confirm that the actual rates of tax paid—[Interruption.]—

The Temporary Chairman (Sir Stephen McAdden): Order. It is one of my responsibilities to listen to the right hon. Member for Llanelli (Mr. Davies). Those hon. Members who do not want to listen will leave the Chamber more quietly, I hope.

Mr. Davies: The clause reduces, quite substantially, the tax on betterment or development. We know that betterment is a gain which very often does not reflect any initiative or enthusiasm on the part of the owner of the land. It is a purely gratuitous gain, very often received as a result of a planner drawing a line on a map which rezones or zones a piece of land as development land. That can result in large gains.
Our objection to the clause is that it reduces substantially the rate of tax on betterment gains, and we do not think that that is justified. There may be some justification for increasing the £10,000 exemption limit to say, £20,000, but to go all the way, not only up to £50,000 but also to reduce the rate of tax to 60 per cent., is to go too far. It takes us back to the situation which existed before this legislation was introduced when large gains were made purely as a result of fortuitous acts resulting in an increase in betterment value.
I shall finish there, and ask the Financial Secretary to confirm that there might well be no tax at all on the £50,000 betterment or that it is a capital gains tacharge.

8.15 p.m.

Mr. Lawson: The right hon. Member for Llanelli (Mr. Davies) said that there was an element of betterment here which was different from other forms of profit. To an extent he is right, and this is recognised in the rate of tax that we have chosen, which is 60 per cent. We were faced with an effective tax rate of 80 per cent. which resulted in a complete land famine with practically no land coming on to the market, causing serious damage to housing prospects. The right hon. Gentleman asked me how far this could be brought down. Clearly, it could not be brought down below 52 per cent., the rate of corporation tax, otherwise the rate of tax on betterment profit would be less than the rate paid on other forms of profit, which clearly could not be justified. The reason why we have pitched this rate at a higher rate than 52 per cent.—namely, 60 per cent.—reflects this special betterment element, and the fact that sales of land are different from sales of other assets—[Interruption.]
The other question that the right hon. Gentleman asked me was whether the £50.000 exempt slice was indeed an exempt—[Interruption]—

The Temporary Chairman: I am sorry to interrupt the hon. Gentleman, but there is such a buzz of conversation it is rather difficult to follow what he is saying. If hon. Members wish to have private conversations I hope they will conduct them either in a low voice or, preferably, outside the Chamber.

Mr. Lawson: The other question the right hon. Gentleman asked me was whether the £50,000 exempt slice was an exempt slice, or whether there would be any capital gains tax liability. As I understand it, there could be a capital gains tax liability, subject to the capital gains tax legislation. If I am incorrect in that, I shall inform the right hon. Gentleman.

Mr. Davies: This is an important point. The hon. Gentleman said that we must rely on the capital gains tax legislation. If there is no capital gains tax at all the whole of the £50,000 betterment value is completely free of tax. I appreciate that there might be capital gains tax on the increase of the old use or the current use value of the land, but I am not talking about that. If I am right—I have not

had an answer from the hon. Gentleman and he is in charge of this clause, not I—on a gain of £100,000 betterment, the first £50,000 is completely tax free and the second £50,000 is taxed at 60 per cent. That means that £30,000 tax is paid on £100,000 betterment value if the first £50,000 is not subject to capital gains tax.
That means that a gain of £100,000 is subject to 30 per cent. tax. I suggest that that is not a fair or equitable way of establishing taxation. Indeed, it is a far lower rate of tax than if someone were to earn that money by the kind of initiative which the Budget is expecting. Such a person would pay 60 per cent. tax. However, if someone is fortunate enough to find that a person who deals with these matters, such as a town planner, draws the line in such a way that his farm comes within the development area. he will get these large gains.
I see that a note has arrived, and I shall allow the Financial Secretary time to look at it. I do not want to make a bogus point, but he has not answered the question. It might be that a gain of £100,000 of betterment is now taxed at only 30 per cent. We need an answer to this question, because it is an important point, quite apart from the other points in the clause.

Mr. Lawson: I am glad to be able to confirm with authority and confidence that the answer I gave to the right hon. Gentleman is precisely correct, namely, that the first £50,000, although exempt from development land tax, is not exempt from capital gains tax.

Mr. Davies: We then find the first £50,000 chargeable at 30 per cent. and the next £50,000 chargeable at 60 per cent., which still provides a rate of tax of less than 50 per cent., if my mathematics are correct. Therefore, the clause provides substantial reductions in taxation for substantial benefits which are in no way created by any hard work or initiative. That is why we say that this reduction is not right.
The Financial Secretary mentioned the building industry, and said that no lond had been released for building. That is not correct. Far more damage has been done to the building industry by the measures in the Budget—the measures


on interest rates, the raising of MLR and the 15 per cent. VAT for repairs and maintenance—than was ever done by the old rates of DLT. That is why we shall vote against the clause.

Mr. Lawson: The right hon. Gentleman is quite wrong. In fact, this change in the tax regime has been welcomed by the building industry for the very fact that it will bring land forward for development. The tax regime which the right hon. Gentleman and his colleagues, when in government, introduced had a dampening and disastrous effect on the land and housing markets and on the building industry. It made sense, if it made sense at all, only in the context of the Community Land Act, which was another disaster which was intended to ensure that all land would eventually be owned by local authorities. As the right hon. Gentleman knows, we intend to

repeal the Community Land Act. Therefore, there is no reason whatever for retaining the damaging nonsense of DLT at 80 per cent., which is totally self-defeating.

I hope that the right hon. Gentleman will reflect that the 60 per cent. rate is at least a level that we believe to be right. It is above the 52 per cent. corporation tax rate, and we shall retain it at that level. We do not intend to reduce it any further. We believe that 60 per cent. is the right rate. It will provide stability, which is the best way of ensuring a flow of land on to the housing market. I should have thought that that was something which the right hon. Gentleman and his colleagues would wish to see as much as we do.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 196. Noes 140.

Division No. 50]
AYES
8.25 p.m.


Aitken, Jonathan
Dover, Denshore
Lang,Ian


Alexander, Richard
Dunn, Robert (Dartford)
Langford-Holt, Sir John


Alton, David
Dykes, Hugh
Lawson, Nigel


Arnold, Tom
Eggar, Timothy
Le Marchant, Spencer


Aspinwall, Jack
Elliott, Sir William
Lester, Jim (Beeston)


Atkins, Rt Hon H. (Spelthorne)
Eyre, Reginald
Lloyd, Ian (Havant &amp; Waterloo)


Baker, Nicholas (North Dorset)
Fairbairn, Nicholas
Lloyd, Peter (Fareham)


Beaumont-Dark, Anthony
Fairgrieve, Russell
Lyell, Nicholas


Beith, A. J.
Faith, Mrs Sheila
Macfarlane, Neil


Benyon, Thomas (Abingdon)
Fenner, Mrs Peggy
MacKay, John (Argyll)


Benyon, W. (Buckingham)
Fisher, Sir Nigel
McNair-Wilson, Michael (Newbury)


Berry, Hon Anthony
Fookes, Miss Janet
McQuarrie, Albert


Best, Keith
Fowler, Rt Hon Norman
Major, John


Bevan, David Gilroy
Fox, Marcus
Marshall, Michael (Arundel)


Biffen, Rt Hon John
Gardiner, George (Reigate)
Marten, Neil (Banbury)


Biggs-Davison, John
Garel-Jones, Tristan
Mates, Michael


Blackburn, John
Glyn, Dr Alan
Mather, Carol


Boscawen, Hon Robert
Goodlad, Alastair
Maude, Rt Hon Angus


Bottomley, Peter (Woolwich West)
Gorst, John
Mawby, Ray


Boyson, Dr Rhodes
Gower, Sir Raymond
Mawhinney, Dr Brian


Bright, Graham
Gray, Hamish
Meyer, Sir Anthony


Brinton, Tim
Griffiths, Peter (Portsmouth N)
Miller, Hal (Bromsgrove &amp; Redditch)


Brown, Michael (Brigg &amp; Sc'thorpe)
Grist, Ian
Mills, lain (Meriden)


Bruce-Gardyne, John
Grylls, Michael
Mills, Peter (West Devon)


Buchanan-Smith Hon Alick
Gummer, John Selwyn
Molyneaux, James


Budgen, Nick
Hamilton, Hon Archie (Eps'm&amp;Ew'll)
Montgomery, Fergus


Bulmer, Esmond
Hamilton, Michael (Salisbury)
Moore, John


Burden, F. A.
Hannam, John
Morris, Michael (Northampton, Sth)


Cadbury, Jocelyn
Hawkins, Paul
Morrison, Hon Charles (Devizes)


Carlisle John (Luton West)
Hawksley, Warren
Morrison, Hon Peter (City of Chester)


Carlisle, Kenneth (Lincoln)
Heddle, John
Murphy, Christopher


Chalker, Mrs Lynda
Henderson, Barry
Myles, David


Channon, Paul
Hill, James
Neale, Gerrard


Chapman, Sydney
Hogg, Hon Douglas (Grantham)
Newton, Tony


Churchill, W. S.
Holland, Philip (Carlton)
Onslow, Cranley


Clark, Dr William (Croydon South)
Hooson, Tom
Page, John (Harrow, West)


Clarke, Kenneth (Rushcliffe)
Howe, Rt Hon Sir Geoffrey
Page, Rt Hon R. Graham (Crosby)


Clegg, Walter
Howells, Geraint
Parris, Matthew


Cockeram, Eric
Hunt, John (Ravensbourne)
Patten, Christopher (Bath)


Colvin, Michael
Irving, Charles (Cheltenham)
Pattie, Geoffrey


Cope, John
Jessel, Toby
Penhaligon, David


Corrie, John
Jopling, Rt Hon Michael
Percival, Sir Ian


Cranborne, Viscount
Kaberry, Sir Donald
Pollock, Alexander


Critchley, Julian
Kilfedder, James A.
Porter, George


Crouch, David
Kimball, Marcus
Powell, Rt Hon J. Enoch (S Down)


Dean, Paul (North Somerset)
King, Rt Hon Tom
Prior, Rt Hon James


Dodsworth, Geoffrey
Knight, Mrs Jill
Proctor, K. Harvey


Dorrell, Stephen
Knox, David
Rathbone, Tim


Douglas-Hamilton, Lord James
Lamont, Norman
Rees, Peter (Dover and Deal)




Rees-Davies, W. R.
Spicer, Michael (S Worcestershire)
Walker, Rt Hon Peter (Worcester)


Renton, Tim
Squire, Robin
Walker-Smith, Rt Hon Sir Derek


Rhodes James, Robert
Stainton, Keith
Wall, Patrick


Ridley, Hon Nicholas
Stanbrook, Ivor
Waller, Gary


Roberts, Michael (Cardiff NW)
Steel, Rt Hon David
Ward, John


Ross, Stephen (Isle of Wight)
Stewart, Ian (Hitchin)
Watson, John


Rost, Peter
Stewart, John (East Renfrewshire)
Wells, Bowen (Hert'rd&amp;Stev'nage)


Sainsbury, Hon Timothy
Stokes, John
Wheeler, John


St. John-Stevas, Rt Hon Norman
Stradling Thomas, J.
Wickenden, Keith


Shaw, Michael (Scarborough)
Tebbit, Norman
Wilkinson, John


Shelton, William (Streatham)
Temple-Morris, Peter
Williams, Delwyn (Montgomery)


Shepherd, Colin (Hereford)
Thorne, Neil (llford South)
Winterton, Nicholas


Shepherd, Richard(Aldridge-Br'hills)
Thornton, Malcolm
Wolfson, Mark


Sims, Roger
van Straubenzee, w. R.



Skeet, T. H. H.
Waddington, David
TELLERS FOR THE AY[...]


Speed, Keith
Wainwright, Richard (Colne Valley)
Mr. John MacGregor [...]


Speller, Tony
Wakeham, John
Mr. Peter Brooke


Spence, John
Waldegrave, Hon William





NOES


Adams, Allen
Field, Frank
Marshall, David (Gl'sgow.Shettles'n)


Allaun, Frank
Flannery, Martin
Marshall, Dr Edmund (Goole)


Armstrong, Rt Hon Ernest
Fletcher, Ted (Darlington)
Mason, Rt Hon Roy


Ashton, Joe
Foot, Rt Hon Michael
Meacher, Michael


Atkinson, Norman (H'gey, Tott'ham)
Ford, Ben
Miller, Dr M. S. (East Kilbride)


Barnett, Rt Hon Joel (Heywood)
Foster, Derek
Mitchell, R. C. (Soton, Itchen)


Benn Rt Hon Anthony Wedgwood
Garrett, John (Norwich S)
Morris, Rt Hon Charles (Openshaw)


Bidwell, Sydney
Garrett, W. E. (Wallsend)
Newens, Stanley


Booth, Rt Hon Albert
Gilbert, Rt Hn Dr John
Orme, Rt Hon Stanley


Brown, Hugh D. (Provan)
Ginsburg, David
Palmer, Arthur


Brown, Robert C. (Newcastle W)
Golding, John
Park, George


Brown, Ronald W. (Hackney S)
Gourlay, Harry
Powell, Raymond (Ogmore)


Buchan, Norman
Graham, Ted
Prescott, John


Callaghan, Rt Hon J. (Cardiff SE)
Grant, George (Morpeth)
Radice, Giles


Callaghan, Jim (Middleton &amp; P)
Grant, John (Islington C)
Roberts, Albert (Normanton)


Campbell-Savours, Dale
Hamilton, James (Bothwell)
Roberts, Ernest (Hackney North)


Canavan, Dennis
Hamilton, W. W. (Central Fife)
Robertson, George


Cartwright, John
Harrison, Rt Hon Walter
Rooker, J. W.


Clark, Dr David (South Shields)
Haynes, Frank
Ross, Ernest (Dundee West)


Cocks, Rt Hon Michael (Bristol S)
Healey, Rt Hon Denis
Rowlands, Ted


Coleman, Donald
Heffer, Eric S.
Shore, Rt Hon Peter (Step and Pop)


Concannon, Rt Hon J. D.
Hogg, Norman (E Dunbartonshire)
Skinner, Dennis


Conian, Bernard
Holland, Stuart (L'beth, Vauxhall)
Smith, Rt Hon J. (North Lanarkshire)


Cowans, Harry
Home Robertson, John
Snape, Peter


Craigen, J. M. (Glasgow, Maryhill)
Homewood, William
Spearing, Nigel


Cryer, Bob
Hooley, Frank
Spriggs, Leslie


Cunliffe, Lawrence
Horam, John
Stallard, A. W.


Cunningham, George (Islington S)
Hughes, Mark (Durham)
Stewart, Rt Hon Donald (W Isles)


Dalyell, Tam
Hughes, Roy (Newport)
Stott, Roger


Davidson, Arthur
Johnson, James (Hull West)
Strang, Gavin


Davies, Rt Hon Denzil (Llanelli)
Jones, Rt Hon Alec (Rhondda)
Thomas, Dafydd (Merioneth)


Davies, E. Hudson (Caerphilly)
Jones, Barry (East Flint)
Thorne, Stan (Preston South)


Davis, Terry (B'rm'ham, Stechford)
Lambie, David
Tinn, James


Deakina, Eric
Lamborn, Harry
Urwin, Rt Hon Tom


Dempsey, James
Lamond, James
Wainwright, Edwin (Dearne Valley)


Dewar, Donald
Leadbitter, Ted
Wellbeloved, James


Dixon, Donald
Leighton, Ronald
Welsh, Michael


Dobson, Frank
Lestor, Miss Joan (Eton &amp; Slough)
White, James (Glasgow, Pollok)


Dormand, Jack
Lewis, Ron (Carlisle)
Whitlock, William


Douglas, Dick
Lofthouse, Geoffrey
Wigley, Dafydd


Dunwoody, Mrs Gwyneth
McCartney, Hugh
Wilson, Gordon (Dundee East)


Eadie, Alex
McDonald, Dr Oonagh
Wilson, Rt Hon Sir Harold (Huyton)


Eastham, Ken
McElhone, Frank
Winnick, David


Ellis, Raymond (NE Derbyshire)
McGuire, Michael (Ince)
Woodall, Alec


Evans, loan (Aberdare)
McKay, Allen (Penistone)



Evans, John (Newton)
McKelvey, William
TELLERS FOR THE NOES:


Ewing, Harry
McMillan, Tom (Glasgow, Central)
Mr. Joseph Dean and


Faulds, Andrew
McNally, Thomas
Mr. George Morton.

Question accordingly agreed to.

Clause 23 ordered to stand part of the Bill.

Schedule 4 agreed to.

Clause 24 ordered to stand part of the Bill.

New Clause 3

REDUCTION OF CAPITAL TRANSFER TAX

" The maximum rate of capital transfer tax for the year 1979–80 shall be 60 per cent"— [Mr. Loveridge.]

Brought up, and read the First time.

Mr. John Loveridge: I beg to move, That the clause be read a Second time.

The Temporary Chairman: With this we may take new clause 5 entitled
 Only one rate of capital tax to apply in respect of lifetime transactions ".

Mr. Loveridge: Many people believe, as I do, that it is only through the small business sector that new jobs can be created on the scale required to reduce unemployment in any substantial measure. Large businesses, public and private, will shed manpower as technological advances come about. We all know this. At the same time, very heavy tax on capital discourages small businesses from expansion. I know this from experience.
In speaking of capital taxes arising on death, perhaps I should declare a contingent interest, although I hope to be around for some time yet. Capital transfer tax at very high marginal rates undoubtedly helps to destroy incentive in medium-sized firms. Therefore, we hope that the Government will view favourably the suggestion that the top rate should be reduced from 75 per cent. to 60 per cent. Capital gains tax affects much of business and many of those people who contemplate investment in business. The combination of both could destroy productive assets, and therefore many proprietors who own their own firms cannot afford and are unable to make the necessary lifetime transfers to ensure the survival of their businesses. Thus, I hope that new clause 5 will be acceptable.
In these new clauses I am very grateful to have the support of my hon. Friends the Members for Uxbridge (Mr. Shersby) and Luton, East (Mr. Bright). I know that the Government intend to review all capital taxes. This promise for the future is most welcome. In the meantime, many businesses will want some practical sign of immediate progress before bringing forward their investment schemes. Medium size firms especially are affected by capital taxes. It is from these medium-

sized firms we must look for a breakthrough in the future. They have the levels of output from which growth would come. If they are owned by inventive entrepreneurs able to pursue new ideas of greater fulfilment, it is easier for such firms to go ahead on risky new ideas from which development may come. It is from these firms that the smaller firm on the fringe will also grow. because such medium-size firms provide work for small specialist firms in addition.
If we encourage the medium-size firms, the new small firms will grow alongside them. Yet the top marginal rate of 75 per cent. CTT hits the medium-size firms most of all. Even though there have been concessions related to this tax on productive assets, none the less it is still large enough to be destructive. For example, if a firm has grown substantially and its assets are valued at. say, as much as £6 million, that firm could well have to pay approaching £2 million in taxes on the death of the owner even after all the reliefs which have already been given. Such owners or the survivor of a man and wife pair are likely to be of middle age and they cannot afford to pay the heavy insurance premiums that will be needed to cover such contingent claims. In any case, many policies will only be aggregated on such an estate to add to the burden of death.
Any business can carry only a certain measure of debt. Proprietors will not expand if they believe that at their death they will leave behind them a dangerous level of debt which could destroy the firm. Expansion by itself requires not only financing for production lines and capacity but, where materials must be paid for before the product is sold, the faster the sales grow the greater the need for credit if dangerous over-trading is to be avoided. Already we have lost many medium-size businesses in mergers with conglomerates. Many of them may be excellent, but the nature of a group of firms is to aim at a known forecast of return on capital rather than at an inventive break-through for the future.
Already this country in terms of population has fewer small firms than have Japan, Germany or the United States. In manufacturing industry in 1968 in the United Kingdom only 29·9 per cent. of employment came from firms with fewer than 200 workers. The nearest comparison


in Germany in 1970 shows that such firms had 43·6 per cent. of employment, and on a slightly different basis in 1970 Japanese firms with fewer than 300 workers accounted for over two-thirds of employment—67·5 per cent—and a higher figure two years later.
The contrast in the very small firms is even greater. Yet it is those countries which are doing so much better economically than we are which have far more small firms than we do. This has great significance for our capacity to recreate full employment. A major job survey in the United States, entitled " Job Generation Process " by David L. Birch of the Massachussetts Institute of Technology, showed that in the period 1960 to 1976 two-thirds—66 per cent.—of all new jobs created came from firms employing fewer than 20 persons. This survey covered over 5·5 million businesses—over 80 per cent. of the private sector in the United States. It is also significant that four-fifths of the new jobs were provided by firms less than five years old. Small and young—that is where the hope for fresh employment lies.
8.45 p.m.
These are the sort of firms that are most likely to develop having obtained orders from medium-size firms with new products that require specialist smaller businesses to service them. They are the very firms which will be put off by high CTT on investment. The tax on death not only destroys incentive for owners who fear to leave heavy debt behind them but hits at their staff, who feel insecure in working for firms that may have a heavy burden of debt to pay.
With such contingent liabilities hanging over these firms, banks do not like to lend them money. The firms that Britain needs most are those that are hardest hit by capital taxation. While we in this country hit such firms hard, other nations help them to prosper. Bank and other credit advances are guaranteed by central or local government in Germany, Switzerland, the United States, Austria, the Netherlands, Belgium, Finland and Japan. Japan has an elaborate system of credit guarantees and State-aided loan facilities that covered credits valued at £6,000 million in 1975. Japan's small business sector dominates two-thirds of manufacturing employment. In Japan, nation,

economy and small businesses expand together.
Since October 1978, small and medium-size firms in Belgium qualify for subsidies of up to 36 per cent. on credit, with reductions of nearly one-third on interest charges. That applies to firms with 40 and, in some cases, 70 workers. I hope that the Government's capital tax plans will do as much for our small firms.
At present, we ask for temporary relief only—for top-rate CTT to line up with top rates of income tax on earned income and the complete elimination of the threat of double tax on lifetime transfers. Past measures of relief were welcome but relief should apply to all transactions alike, without there being any doubt about the matter.
The European business magazine Vision reminded us in November 1978 that most European Governments provide low-interest loans, special write-off provisions and guarantees for long-term borrowing as well as providing other forms of subsidy to create the work that new jobs demand. The article stated:
 If an independent British entrepreneur leaves his business with, say, £1 million, a 30 per cent. tax is due.
Not only are small and medium-size firms actively helped in other successful countries but effective rates of duty on death are much lower. Many countries give relief to sons and other relatives. Our top rate of 75 per cent. compares ominously. For example, Holland in 1975 had a top rate of 54 per cent. That was relieved to a maximum of 17 per cent. for inheritance by a son. There is similar relief in many other EEC countries. No wonder our small and medium-size businesses ask the Government to get off their backs. No wonder the present Chancellor of the Exchequer said in 1976:
The next Conservative Government certainly would take emergency action to prevent any further damage being done by CTT.
Since then reliefs have been given. However, those reliefs leave an emergency contingent danger for the medium-size firm and a threat to the productive assets of that firm if the owner dies.
Now is the time for modest and simple reliefs to be given. New clauses 3 and 5 would provide them. The creative capacity of small firms is threatened in an emergency if their owners are old or ill.
Will the Government act to give transitional relief now, pending major reforms that are to come? Thus, by practical deed the Government would bring extra new life and hope into medium-size firms and the small firms which depend upon the large firms.
Much has been given in the Budget. The small business sector appreciates what has been done. I hope that the Government will consider this case before they reject it. We are grateful for what has been done. But this problem still needs to be met.

Mr. Michael Shersby: The Chancellor of the Exchequer made it clear in his Budget speech that he intended to review capital taxation but, due to the compressed timetable, that he was unable to make all the changes as quickly as he would like to make them. The Chancellor's statement was welcomed by the House and by many small and medium-size firms in my constituency.
However, I hope that without disturbing the general policy to review the structure of capital taxation, it will be possible to give small businesses interim relief and encouragement. That case was put forcibly by my hon. Friend the Member for Upminster (Mr. Loveridge) in his admirable speech.
I am talking of the medium-size firm with assets of between £5 million and £6 million which may have to pay £l½ million to £2 million in capital transfer tax on the death of the sole owner.
If we do not provide interim encouragement pending a complete review, we shall not provide sufficient encouragement for investment by such firms. This investment is essential if we are to encourage expansion and create the new jobs which are needed to replace the jobs which are being lost in many large firms.
Insurance premiums providing the type of life cover which is sufficient to meet such a capital tax liability are far too dear to make insurance a viable proposition for the proprietors of small and medium-size firms.
In Britain, there are fewer small businesses in relation to population than in other European countries. We must give them encouragement this year rather than next year. For that reason, my hon.

Friends and I intervene to press the Government to take action.
Such encouragement would not affect the general review and would cut the top rate of tax to the same level as the top rate of income tax. Other countries give credit guarantees and loan subsidies to firms with up to 40 or 70 employees. For example, Belgium gives up to 30 per cent. credit by way of grant. Nearly one-third of the interest charges are relieved.
Small and medium-size firms in Britain account for 29·9 per cent. of employment. Each of them employs fewer than 200 workers. In Germany, small firms account for over 40 per cent of employment. In Japan, such firms account for 67·5 per cent. of employment. I am talking of firms with up to 300 employees.
The small firm sector in those countries is larger than in Britain and yet they are richer than we are. Moreover, their rates of death duty are lower than ours, which is another point that the Treasury Bench should consider. In addition, many European countries give special relief to sons and other relatives, bringing the tax on death to low levels. In France, for example, the 60 per cent. maximum marginal rate came down in 1975 to 20 per cent. for a son.
This brings me to new clause 5, which deals with capital gains tax. I ask the House to consider a firm in sole ownership having assets of, say, £3 million. On disposal of the firm in conditions where roll-over relief does not apply, CGT will be payable at the maximum rate, which could be about £1 million. To pay that it would be necessary for the firm to sell business assets which then would attract CGT on the inflation of values, which might be a 30 per cent. difference between old and new on current values.
I could not illustrate this better than to quote from a letter which by pure chance I received today. My correspondent says:
 As I mentioned to you recently, CGT and CTT are our major problems. Our latest profit figures are about £1 million pre-tax and the company owns substantial freehold properties. Despite taking defensive action over 10 years ago, if either my brother or I die there is no way the company can survive in family ownership.
That is an example of the situation that requires emergency action. It will not be good enough simply to delay the necessary reforms for an undue period.
It is for these reasons, therefore, that I believe that it is urgently necessary to end the charging of CGT on the same lifetime transactions as are charged to CTT. I therefore support the clauses in the name of my hon. Friend the Member for Upminster, and I hope that the Government will be able to give some assurances this evening that urgent remedial interim action will now be taken.

Mr. Bob Cryer: I believe that the clauses are misplaced because they overlook the efforts of the last Labour Government to assist small firms. Capital transfer tax on the value of the business for small firms was halved to provide 50 per cent. relief. In addition, for example, a man and a wife who own a business will receive a substantial allowance or exemption from CTT of around £100,000. We also doubled the annual allowance of exemption from CTT for gifts so that significant and extremely generous allowances were made after representations by various small firms' organisations.
If Conservative Members are concerned about small businesses, they should examine the background of Government policy much more intimately than simply fastening their criticisms on the position of CTT. I received representations only last Saturday from a director of a small firm in my constituency who was outraged to discover that the small firms employment subsidy ended for all firms, other than those in special development areas and development areas, on 30 June. The director was unable to take on extra people because, he said, he would have cash flow problems.
That subsidy provided direct assistance for small firms in manufacturing industry employing fewer than 200 people to take on additional employees. Many firms took advantage of that incentive, which demonstrates that the emphasis of Conservative Members on CTT is misplaced.

Mr. Shersby: I am interested in this point. I took the trouble to check up some months ago on the extent of the take-up of that benefit in the London area. I found that it was very small. In checking this matter out with industrialists in Uxbridge I found that they want not a subsidy on employment but the opportunity to give a security to their

firms for the future, which would do far more to generate expansion.

9 p.m.

Mr. Cryer: In my constituency, 64 firms have received the small firms employment subsidy. I do not know how many people that covers, but I assure the hon. Gentleman that if each of those 64 takes on one additional employee that is a welcome addition to the creation of employment opportunities in the area. I am deeply disappointed to see that kind of support diminishing. Clearly, circumstances will vary throughout the country, but too much emphasis has been given to factors like CTT and not enough to direct support such as the small firms employment subsidy.
Loan guarantee schemes are a direct intervention by the Government. France, West Germany and Japan assist. In the United States, the small firms business administration intervenes extensively to help small firms—more, indeed, in some areas than I would think desirable—particularly through the small firms guarantees scheme.
The proposal in the new clause is contradistinction to the Government's view that small firms should stand on their own feet and meet the storms in the market place, with the weak going to the wall and the strong surviving. Hon. Gentlemen omit from their calculations that the strong are very often the top 100 companies, which buy up small firms and close them down. The small family firm usually comes to an end because the son or grandson of the founder decides not to follow in the family tradition, for all sorts of reasons, not because of CTT or CGT but because he thinks that dabbling with commerce or industry is rather undistinguished and he wants to farm in Sussex or the posher parts of Yorkshire. That is what happens. That is why small firms sell out to big firms, which then close them down because they have a competitive product, or are inconvenient, or for some other reason.
There are many other reasons why small firms should obtain a reasonable amount of assistance but it is clear that they will not get it from this Government. Yet the squalls of the market place are often too strong for small firms to survive. The Government are saying that they must survive or go under. I share the view that


small firms need a certain amount of assistance and guidance in order to weather the advances of big firms and the difficulties of economic recession.
The public expenditure cuts which the Government are already starting to impose will wreak far more havoc than any of the taxes which the Labour Government put forward. Indeed, the Labour Government made significant concessions to assist small firms. When local authorities cut back, it is often the small firms which do not get the contracts. When Government Departments cut back, in many instances it is the small firms which do not get the jobs. Where a large firm is involved and it has to cut back because of a reduction in Government orders, it is the small firms which supply components that suffer.
For example, to British Leyland and Chrysler—two giants—over 10,000 firms, employing fewer than 200 people each, supply components and services. Thus, if the Government rescue or preserve a large firm, there is a chain reaction through to small firms. That is why I hope that we shall see increasing concern among hon. Members opposite because their Government's present policies will wreak great damage among big, medium-size and small firms.
The concessions that the Labour Government gave on CTT and CGT—particularly the former—were sufficient to give a degree of confidence to small firms. They generously met the representations made on behalf of the small firms. In my judgment, we shall need to look at a much wider area of economic activity to ensure that small firms play their part in the economy.

Mr. Peter Rees: The two new clauses before us, in the names of my hon. Friends the Members for Upminster (Mr. Loveridge), for Uxbridge (Mr. Shersby) and for Luton, East (Mr. Bright), raise an important question and have generated a small but significant debate. My hon. Friends the Members for Upminster and for Uxbridge have presented a strong case. My hon. Friend the Member for Upminster described new clause 3 as modest and simple. I am bound to concede its simplicity. It is concise in the extreme. It is modest. As for the cost, the best estimate that we can give is £2 million.
New clause 5 may be modest, but it is not entirely simple, and I hope that my hon. Friend the Member for Uxbridge will forgive me for pointing out that there are one or two technical defects. I never like that argument, because we are more concerned at this stage with the principle, but the clause does not, for example, deal with the question of capital losses and it does not entirely meet the case that there may be a small element of a transaction which attracts capital transfer lax —not the whole of it—but does the whole of it attract capital gains tax? I suspect that the answer is " Yes ", but, as I say, I do not wish to rest my case on the ground of technical defect, and I recognise that my hon. Friends and, I imagine, all hon. Members are concerned with the principle.
We on the Treasury Bench recognise the damage which the ill-considered, ill-thought-out and ill-prepared measures which comprise capital transfer tax have done to agriculture, industry and the capital market. I may say that added weight is given to the case presented so admirably by my hon. Friend the Member for Upminster by the publication today of the Northfield report. Lord Northfield was enjoined to undertake his task by the previous Government, and we shall need to study with care his report on the patterns of land holding and the impact on agriculture of many of these ill-judged measures.
I was interested in the speech of the hon. Member for Keighley (Mr. Cryer). I know that he had a certain preoccupation with these measures under the last Administration. I do not underestimate his depth of knowledge, although I do not share his approach or his prejudices. The hon. Gentleman said a little plaintively that my hon. Friends had overlooked the Lever package, as I always describe it in verbal shorthand. I cannot remember now—I hope that he will forgive me—whether the hon. Gentleman had a personal hand in it, but I can only say, I hope not too dismissively, that if my hon. Friends overlooked it the reason is perhaps that the Lever package is all too easily overlooked.
I do not believe that the Lever package measures have put many taxpayers back even in the position that they were in when capital transfer tax was first introduced. We shall have to have a much


more fundamental examination of capital transfer tax and, indeed, capital gains tax than Mr. Harold Lever, as he then was, even with the able assistance, no doubt, of the hon. Member for Keighly, constrained by the prejudices of the rest of his right hon. and hon. Friends, was able to give to those two taxes.
In this context I put particular emphasis on capital gains tax. I mentioned the impact of inflation and the way in which it had accentuated the burdens of these taxes. Perhaps one of the most significant answers ever given to a parliamentary question was that given, I think, by the right hon. Member for Heywood and Royton (Mr. Barnett), when Chief Secretary, to a question asking what would be excluded from capital gains if inflationary gains were taken out of the charge to capital gains tax. I regret that I do not remember the precise terms, but the answer was about £250 million—between two-thirds and three-quarters of the yield of capital gains tax. That demonstrates the impact which the tax is having not only on private fortunes, which the Opposition may regard as a legitimate target for the tax, but also on agriculture and industry.
We on these Benches recognise that something fundamental has to be done. My right hon. and learned Friend the Chancellor made clear in his Budget speech—from a more modest position, I ventured to re-emphasise it in our debates on clause 22—that we shall be undertaking such a review during the course of this winter. I hope that the fruits of our review will be embodied in the next Finance Bill that the House of Commons will be called on to debate.
I listened sympathetically to the pleas of my hon. Friends. They ask for immediate and urgent short-term reliefs. As I am sure they will recognise, it is not merely a matter of rates. A lowering of the top rate contracts the bands below. In a review of capital transfer tax it is not easy to separate the rates and the significant and technical detail. Those matters will have to be considered against the background of altered rates and altered bands.
I hope that my hon. Friends will recognise that the debate has served a useful purpose. It has set out certain markers

that the Government will not be disposed to ignore. However, we feel that we shall be able to do a more workmanlike and, ultimately, a more constructive job. It may be that I am being naively optimistic, but I hope that when our review is produced we shall be able to find sonic common ground. I look forward to carrying with us the hon. Member for Keighley. We know that the hon. Gentleman's heart and mind are in the right places. Now that the hon. Gentleman is free from the constraints of office, it may be possible for him to find some common ground with the Government.
The right hon. Member for Llanelli (Mr. Davies), who I believe reached the Government Front Bench before the introduction of capital transfer tax, said that he did not have to show any pride of authorship. Of course, capital gains tax was introduced by his right hon. Friend the Leader of the Opposition, the right hon. Member for Cardiff, South-East (Mr. Callaghan). Although they are both Welsh Members, the right hon. Member for Llanelli does not have to show any real solidarity with his right hon. Friend on that score.
I hope that we shall be able to find some common ground and that we shall be able to approach these important matters without prejudice, rancour or partisanship when we discuss the next Finance Bill. Against that background, I hope that my hon. Friends will feel able to withdraw the new clause.
I conclude by picking out a telling phrase used by my hon. Friend the Member for Upminster. In the course of his remarks he said, most appropriately—I warmed to him, as I so often do—that much has been given to the small business sector. The Government recognise that there is much still to be done, and much will be done. I hope that, having received that categoric assurance, my hon. Friends will feel able to withdraw the new clause.

Mr. Loveridge: In the light of the sympathetic words of my hon. and learned Friend and the clear undertakings that he has given for the near future, we hope, I beg to ask leave to withdraw the new clause.

Motion and clause, by leave, withdrawn.

New Clause 11

EXEMPTIONS OF WIDOWS' PENSIONS

" Payments of pensions or allowances under the Social Security Act 1975 in respect of widows and their children shall not be treated as income for any purposes of the Income Tax Acts.".—[Mr. Meacher.]

Brought up, and read the First time.

Mr. Michael Meacher: I beg to move, That the clause be read a Second time.

The Temporary Chairman (Mr. Michael English): With this we may take new clause 12, entitled " Personal relief for widows ".

Mr. Meacher: First, Mr. English, I must apologise to the Committee on behalf of my right hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley), who, in response to an engagement that he entered into several months ago, has today been opening a conference on mentally handicapped children in Edinburgh. I am sure that the view held by both sides of the Committee is that my right hon. Friend has a fine record of experience in and knowledge of these matters. I shall do my best to represent his views in introducing the new clause.
There can be no doubt that there is a tremendous amount of feeling and support for the proposal embodied in the clause—namely, the exemption of widows' pensions from tax. There are, of course, many widows and widows' organisations throughout the country. No one likes paying more tax than is necessary, but feeling goes a great deal deeper than that. There is widespread feeling and bitterness among widows about their need to maintain their family standards, to be self-reliant, to be independent and not to fall back on the social security system, which they wish to avoid at all costs. Those needs and desires are constantly and unfairly thwarted by the burden of tax that they have to bear.
The widow's pension is £19·50 a week. If a widow works full time and earns, for example, £60 a week, she will pay tax of £16·40 a week. Therefore, almost the whole of the widow's pension is swallowed up in tax on her modest earnings. Naturally, working widows are resentful about that, especially when they recall

that their pensions were secured as a result of their husbands' contributions paid out of taxed earnings. Their awareness of the double taxation adds to their sense of grievance.
I am well aware of the traditional Treasury reply. Perhaps I may give it now so that I have a chance to reply. It has been given many times from the Dispatch Box. It is that as all income should be taxable, singling out widows' pensions for exemption from tax would not be justified. But that argument no longer holds water when the Government single out war widows' pensions for exemption.
9.15 p.m.
There are two alternative tenable positions. Either we exempt all widows' pensions, or none. What cannot be justified is the exemption of a few but not the rest. Why have the Government adopted that course? No doubt the Government will say that war widows are in a special category. I take a different view. The criterion for assistance should be the financial need of the widow rather than the social merit or the social status of the husband, or the circumstances of his death. That is my view.
The situation of the war widows has already been recognised by a markedly higher differential cash pension, which is currently £25·30 for a war widow, £20·05 for an industrial injuries widow and £19·50 for the rest of the widows. There is considerable recognition of the special situation of the war widows. Recognition of their special position cannot be the reason for the Government tax exemption for them. I suspect that the reason is more calculated than that. The Conservatives are hoist on their own petard. Having supported a Labour Back Bench revolt to secure a 50 per cent. tax exemption in 1976, the Conservative Government are now extending it to 100 per cent. for war widows. They are not going further, as logic and principle would seem to justify, but simply because it is cheap. The cost of extending it from 50 per cent. to 100 per cent. for war widows is £4 million, according to a Treasury answer, or £6 million in a full year. Only 40,000 widows—about 1 per cent. of all widows —will benefit. Even of those, only about one-half will be taken out of the tax range. As they are war widows, their


number will gradually decline over the years.
Cheapness is always a bad reason, in equity. Here it opens up obvious anomalies. First, why should a war widow, who already receives a considerably larger pension, now receive on top a tax exemption that is denied to other widows? Secondly, is a widow whose husband dies of pneumoconiosis, contracted in the mines or, as happens so frequently in my constituency, of byssinosis, as a result of working for 30 years in the textile mills, less deserving than a war widow? Thirdly, if the Treasury's sacred principle of regarding all income as taxable is once breached—it was breached in 1976, and that breach is being carried further in this Bill—how can the Government draw the line so arbitrarily just to include one small category of widows?
I suspect that the real argument is not about principle but about cost. The cost of the amendment that I am putting forward would be, according to a Treasury answer given on 11 June this year, about £90 million. That may seem a fairly sizeable sum, but it also needs to be seen in perspective. The Government have been giving away, in very substantial tax handouts to the rich and to the high earners, a sum which, on their own evidence, they calculate at about £650 million. Indeed, there is one measure out of this package of measures to benefit the higher paid which involves giving away no less than £200 million. That is the cost of raising the investment income surcharge threshold. Almost the whole of this handout will be concentrated among those earning above the national average wage.
Although the cost of the amendment would be £90 million, the Government cannot say that the money is not available. It is available and it is purely a question of the Government's political priorities. Are these tax concessions to go wholly, exclusively or overwhelmingly to managers and directors who are mostly on well above average incomes, or are they to go, at least partly, or in something more than a minuscule way, to widows who are mostly on well below average incomes?
On these grounds, I hope that the Government will reconsider their political priorities sufficiently to accept the new clause.

Mr. Tony Durant: I should like to comment on new clause 12. We went round this course last night; therefore, I shall not delay the Committee long. I want only to make the case again on behalf of widows.
Last night we talked about allowing the widows to claim the married women's allowance in order to provide an incentive for them to go out to work. That amendment was moved very ably and we had a most interesting debate on it. My proposal suggests that 50 per cent. of the widow's allowance be disallowed for tax purposes. This will cost about £45 million and does not go as far as the hon. Member for Oldham, West (Mr. Meacher) would like to go. He suggested that all of the widow's pension be disallowed for tax purposes. If I may say so, I thought that he was harping a bit on the question of the war widow's pension. Perhaps he ought to talk to his hon. Friend the Member for Ormskirk (Mr. Kilroy-Silk), who last night welcomed the Government's decision to allow the war widow's pension to be tax free. As he was the mover of the original motion relating to the 50 per cent., I thought that he acted most honourably in welcoming the Government's decision. I do not deprecate the main arguments of the hon. Member for Oldham, West, but he was rather harping on the aspect relating to the war widow's pensions.
We talked last night, in a quite interesting debate, of all the reasons why the working widow is placed in a difficulty. The need for her to go out to work was strongly emphasised by the hon. Member for Woolwich, East (Mr. Cartwright). It was right to concentrate on that aspect because it is a fundamental fact. In all my dealings with the National Association of Widows, there is a constant reiteration that after the initial year the desire of widows, after the shock has faded. is to get out and about and to get back into society. Work is a wonderful avenue by which they can do this. We talked about this at some length last night As the hon. Member for West Lothian (Mr. Dalyell) reminded us, these widows often have expectations. They often have higher standards. They often have houses to maintain, and all the extra costs. This is another important aspect on which we touched last night. What I find odd in all Government thinking is that the State has


accepted for a long time that widows are a special case. They receive a pension, so the Government must accept that widows are a special case and have a special problem. It seems odd that every time the Government, of whatever complexion, claw back that pension through tax. That is a great pity. I am suggesting that a 50 per cent. allowance be made for tax, which is a modest step in the right direction.
Another matter which was raised in our debate last night, and which needs re-emphasising, is that there is an increasing number of young widows. It is an important factor of which the Government must take more congnisance. Widows are not all old ladies living in hotels in Bournemouth with a couple of Pekinese. Those days are gone. Many widows are young women who face parsimony and they feel bitter about their situation.
I accept that the Government's wish and policy in the Budget to give war widows complete relief from tax is an understandable move. There is an emotional background to that. As the hon. Member for Oldham, West said, there is no real logic to it. It is emotional. It is understandable, because it results from a campaign for war widows which has gone on for a long time. As the hon. Member for Oldham, West rightly said, the effect on the widow is exactly the same. It is perhaps more honourable to have a photograph of one's husband on the mantelpiece with a medal beside it, but the net financial effect of overwork, or some disease such as cancer, is exactly the same.
Regrettably, too few husbands, particularly young husbands, prepare for the fact that they may leave a widow behind. As they get older perhaps they think about this sort of thing, but certainly when they are young it does not seem to be important. When a woman is suddenly alone, she faces a number of problems which she has probably not had to think about previously. If she lives in a house for which her husband has been paying, there is the mortgage. If she lives in a council house, there is the problem of the transfer of the tenancy. There are problems with the will and probate, and understanding social security benefits.
As Members of Parliament, we all sit at our desks during surgeries and receive visits from people asking about benefits. I am often caught out regarding what benefits a person is entitled to, and a widow has to face many of these issues on her own. She perhaps has to sort out the income tax. Many widows get a special short-term allowance when their husbands die and do not appreciate that it is subject to tax. Suddenly they have a large tax bill. There are, of course, arrangements that can be made with the Inland Revenue, but the widow is not aware of those arrangements. Therefore, they have the further problem of running into tax arrears on top of everything else. The tax on a widow's small pension —and it is small—is something that we as a nation should look at more carefully.
I received a letter from the National Association of Widows which rather belies what the hon. Member for Oldham, West said. The National Association of Widows does not decry the fact that war widows receive their pensions tax free.

Mr. Meacher: The hon. Member has made reference to me several times in that context. I do not decry the fact that war widows receive tax exemption, either on 50 per cent. or 100 per cent. of their pension. What I say is that if we go in that direction we should be consistent and logical and extend it to other widows.

Mr. Durant: What I am about to read supports what the hon. Gentleman has just said. I shall read from the letter I received from June Hemer, the founder and honorary general secretary of the National Association of Widows. She says:
 We are, of course, very happy that the pensions of War Widows are now to be free of tax, indeed many of our members are also War Widows, they regret as we do the divisions of categories of widows "—
which covers the hon. Gentleman's point.
 In a budget designed to give incentive to work, and rightly so, this division is accentuated.
Therefore, that supports the point which the hon. Member for Oldham, West made, although I felt that he went on about it at some length.
9.30 p.m.
Last night, the Financial Secretary said that the whole matter of widows was under review. Therefore, I am putting


another alternative to him to consider. First, there is the question raised last night with regard to the married woman's allowance. and I am now suggesting a 50 per cent. disallowance.
I hope that my hon. Friend will take this point on board. There may be better ways of doing this, but he must act soon because widows will not wait much longer. The feeling in the country is rising weekly and monthly. I have seen this during the last four years in which I have been involved with widows' organisations. Rallies at Central Hall and meetings in individual constituencies get more and more violent and angry. Widows are in the main reasonable people. I therefore urge the Government to realise that time is running out and that they had better come forward with some suggestion, certainly in the next Budget.

Mr. John Cartwright: I must confess to being a somewhat reluctant supporter of the new clause. In principle, I tend to the view which the Financial Secretary took last night when resisting the amendment that I put before the Committee. I tend to the view that all income should be taxable. Once we raise the question of exemptions we get into very dangerous waters. I incline to the view that if we exempt one long-term benefit—widows' pensions—in equity we are in some difficulty in resisting a similar approach in relation to retirement pensions and other long-term benefits. One exemption of this sort inevitably leads to another.
I would not have supported the new clause but for two facts. First, no other help is on offer for widows. The Financial Secretary effectively resisted my attempt last night to try to give assistance to the working widow. At this stage in the Finance Bill, there is no possibility of introducing an amendment that deals with the question of a householder's allowance. The Financial Secretary told us that a review of the whole problem of widows and their taxation was being conducted, but he was not very encouraging. He was certainly unwilling to give any indication that there would be any positive outcome from that review by the time we discuss the Finance Bill next year. Therefore, it seems to me that at present this is the only way in which to make progress towards helping widows, who in my view need and deserve some assistance.
Secondly, I support the new clause because the principle has clearly been established by the way in which the Government are treating war widows. I hope that the hon. Member for Reading, North (Mr. Durant) will not think that I am harping on this point. In a sense, it is the weak link in the Government's armour. I know that the Financial Secretary was a somewhat reluctant supporter of the idea of exempting war widows' pensions for tax purposes. When we debated this in the House he declared himself of the view that something should be done for the war widow, but added that this was not the right way to do it. However, having set out all the reasons why it was not the right way to do it, he eventually accepted it, because at the end of his speech he said that there was room in politics for a sentiment which transcended logic and that that was the only argument for doing something for war widows.
The sentiment which transcends logic has again been repeated in this Finance Bill by the total exemption of the war widow's pension. Like the hon. Member for Reading, North and my hon. Friend the Member for Oldham, West (Mr. Meacher), I do not criticise that help. I do not begrudge it going to war widows, because I am sure that they deserve it. What I worry about is why it goes only to that particular group of widows and is not available for other widows.
The point made by my hon. Friend the Member for Oldham, West is valid. There is something repugnant about treating widows in a different way. There is something repugnant about making some sort of value judgment in respect of widows. A judgment should not be made between a war widow and a woman who is widowed as a result of industrial injury, accident or illness. They are all widows and have the same needs. They should be treated in the same way. However glad widows are that their war widow sisters will be getting that extra help, they will not understand why they too will not receive it.
It is on those grounds that I support the new clause.

Mr. John Home Robertson: In normal circumstances I should not be rising to take part in the Committee stage of the Finance Bill.
I would rather leave that to the financial geniuses on both Front Benches—to the estate agents on the Government Benches and the anti-estate agents on the Labour Benches.
Like certain other of my hon. Friends, in normal circumstances I should prefer not to support such a clause as new clause 12. As has been said, it would give a 50 per cent. tax exemption on the widow's allowance. I would far rather support a measure that would give widows, along with others in need, a fair income on which they could be taxed. I dislike the concept of perks and special tax exemptions that look like charity. We do not, however, live in normal circumstances. We have a Government wedded to the two-pronged economic strategy of cutting public expenditure, including that on social services, and cutting taxation.
Over the next few years my right hon. and hon. Friends will have to do a great deal of peering into the twilight of Tory logic. If we do that now we can see a slight chink of light in the form of tax cuts that could help widows. Even if there is to be no more public expenditure on better benefits for widows, they may be able to benefit from tax cuts. We shall have to make the best of a bad job over the next few years and we should begin to do that now.
The Government's tax cuts have so far benefited only those with high incomes. That has been well demonstrated by speaker after speaker from the Labour Benches. One does not have to be clever to understand that other people in general will be worse off. The new clause gives the Government an opportunity to redeem themselves and help a section of the population that richly deserves to have its needs better recognised—widows in general and working widows in particular.
I wish to be fair. In the 1976 Finance Bill Conservative Members used their votes to support a number of my right hon. and hon. Friends in giving 50 per cent. tax relief to war widows. Clause 9 of the Finance Bill goes further and exempts war widows' pensions altogether from tax. I applaud that. I am sure that my hon. Friend for Oldham, West (Mr. Meacher) did not intend to cast aspersions on that move. We all welcome it. No one could be more deserving of

sympathetic treatment than the widow of a soldier killed on active service defending his country or in Northern Ireland. I congratulate the Government on the genuine idealism they have shown in granting tax relief to these war widows, and invite them to pursue that logic a little further.
Last night, in replying to another amendment that would have helped widows, the Financial Secretary mentioned the dangers of setting a precedent by creating such an exemption. I believe that he also mentioned that during the Committee stage of the Finance Bill in 1976. The fact remains that the exemption has been given. It is incorporated in the Bill. The Government have opened the stable door and I invite them to bolt through it and extend these benefits to other widows. What is the difference, in terms of need and merit between a widow whose husband died in the war and one whose husband died at work as a result of an accident or of cancer or some industrial disease?
In my constituency we rely very largely on primary industry—fishing, agriculture quarrying and mining. These are dangerous industries where accidents occur and in which industrial diseases are likely to be contracted. Inevitably, from time to time some men die young. Then, of course, there are young widows who must go out to work to supplement their income. But we have not only young widows who work but widows of all ages in our surgeries complaining about the level of taxation on their pensions. Only last Saturday a widow from a village near Dunbar in my constituency came to my surgery and gave me a pay slip. In two weeks she had done 17 hours' work and earned £18·78. On this amount she paid £9·10 tax. This seems to be a heavy dose of taxation for that kind of income.
Many widows of all ages must supplement their pensions in order to get a reasonable income on which to live. Many resent being taxed on their whole income including their pension, particularly when their pension is so pitiful. I am not proud of the fact that the Labour Government did not do more to help these people. My hon. Friend the Member for West Lothian (Mr. Dalyell) was right when he said last night that this was an infinitely more important issue in the minds of the electorate than devolution


and many other issues. It is a pleasure to agree with him. We have had this problem brought to our notice over and over again.
In recent years we have heard a lot about the West Lothian question. Let us hear a lot more about the Berwick and East Lothian question—about widows and how we can achieve more for them. This is a big issue throughout the country. I offer some friendly advice to the Government. They badly need something popular at the moment, as they seem to be very unpopular in many areas, particularly the North-East of England and Scotland. If they were not I might be out of a job.
New clause 12 gives the Government a golden opportunity to do three things—to fulfil their pledge to cut taxation; to bring all widows into line with war widows; and to do something honourable and popular which might enhance their image with the electorate. Even if the Minister cannot support the new clause, I appeal to Conservative Back Benchers to support it tonight.

Mr. Dalyell: I did not intend to take part in the debate tonight because it shows all the signs of being a re-run of last night. However, I felt I should take part, first of all, because of the accusation against my hon. Friend the Member for Oldham, West (Mr. Meacher) of harping.
It should be said fairly clearly that there are a lot of disgruntled widows in this country. For example, take the widow of a young coal miner. I have a number of coal mines in my constituency, and there is a feeling that those who die as a result of pit accidents or pneumoconiosis are being discriminated against. My hon. Friend the Member for Ashfield (Mr. Haynes) knows about this kind of issue. Or as another example, consider the widow of someone who dies in the fire service. The situation is invidious. Pandora's box has been opened and once a decision has been taken on war widows, many other consequences flow. I wish there to be no misunderstanding on that score.
9.45 p.m.
I want to ask a question. This may have been answered last night, but I do not think that is the case. We are all at a great disadvantage through not being pro-

vided with copies of the printed Hansard. We cannot check these matters in the normal manner. It is difficult to read the present version of Hansard, though I do not wish to reflect on the efforts of those who produce the typescript.
My question is as follows: are there any readily available figures in the Treasury showing the cost of bringing all widows into line with war widows? I suspect that the sum is enormous, but I do not think that the figure was given last night. If we are to continue to debate this topic, I believe that we should be clear about the cost to the Treasury. Indeed, it would be extremely helpful if we could be given a cost analysis of the new clause.

Mr. Lawson: I begin by answering the point put to me by the lion. Member for West Lothian (Mr. Dalyell) as to the cost to the Treasury if all widows were put on the same footing as war widows. The cost would be of the order of £100 million.
However, we would then be asked why the matter should be left there. Many arguments would be deployed for pensioners to be freed from tax. It would be argued that many pensioners are worse off than many younger widows. No doubt a case would also be made—and I made this clear in the full debate on this subject last night—that divorced or separated wives bringing up families are in very much the same position as widows. There would be a further immense cost if a similar provision were granted in that respect.
No hon. Member on either side of the Committee wishes to pretend that there is no great grief and sense of loss in widowhood. The bereavement is real and great. The question is where the line should be drawn. What has differentiated this brief debate from the rather longer debate which the Committee had yesterday is the emphasis placed on the treatment of war widows compared with that meted out to other widows.
The hon. Member for Woolwich, East (Mr. Cartwright) was assiduous enough to look up my words in Standing Committee in 1976 when the 50 per cent. exemption was debated. I then said—and I maintain this view—that in pure logic there is no reason to breach the principle that all income should be taxable and no


reason to suggest that war widows' pensions should be free of tax. I also said that there were occasions in politics when matters of emotion transcend logical consideration.
Where should the line be drawn? To a certain extent, the House decided in 1976 that the line should be drawn at war widows and that they were a special and different category. It can be argued that it is not the right place to draw the line, but it is a matter of judgment. It is not a new judgment. As far back as 1919 a Select Committee of the House decided that war widows' pensions should be free from tax although that recommendation was not implemented.
The war disability pension has always been specifically free from tax. I have always felt that to be one of the strongest arguments in favour of exempting the war widows' pension. The great majority of countries, on whichever side of the last war they happened to be, pay war widows' pensions tax-free even though the ordinary widow's pension is not tax-free. Therefore, we are not the only country to do this.
There is a strong feeling in many countries of the world that there is something special about a man who has given his life for his country on active service and that that sacrifice should be recognised in the treatment of this widow. I cannot justify that in logic but it is something that many hon. Members have felt. That is why the 50 per cent. exemption was granted in 1976 and that is why we have decided, in line with the feeling of Parliament at that time, and—I hope—at this time, that we should go all the way along that route. However, it is wrong to suggest that because we have taken this step it follows inexorably that we should go the whole way with other widows' pensions.
My hon. Friend the Member for Reading, North (Mr. Durant) made an admirable supeech in introducing his new Clause. He struck a better tone than that of the hon. Member for Oldham, West (Mr. Meacher), who made many unjustified charges. That hon. Member said that the tax cuts in the Budget went overwhelmingly to those on above average incomes, citing the income tax cuts of more than £600 million on the higher

rate thresholds and higher rates of income tax out of the total income tax cuts of £4¼, billion. Therefore it is untrue to say that the bulk of the tax cuts apply to those on higher incomes.
The hon. Member for Berwick and East Lothian (Mr. Home Robertson) referred to a widow in Dunbar who came to him about the amount of tax that she was paying on her pension. I suspect that she was paying at the old rates because the new rates apply partly in this month and fully in October. She will find that she has been relieved by the reductions taxation of the Budget. Much of what has been relieved by the reductions in points to the fact that it is the rate of income tax which is too high, particularly on low incomes. That applies to many and not merely to widows.
We have done much to alleviate that in the Finance Bill with the sizeable rise of 18 per cent. in the threshold. I concede readily that it is not enough and we will seek to go further in future years. My hon. Friend the Member for Reading, North referred to the great anger felt by his constituents. That anger has grown in recent years largely because the income tax burden has grown. I hope that as the income tax burden is reduced widows will feel less angry. I do not mean by that that I am unsympathetic to the sense of loss and bewilderment and the difficulties that they encounter when they lose their husbands.
My hon. Friend for Reading, North was helpful in suggesting what more might be done—if anything should be done—to help widows through the tax system. We shall consider all suggestions. That is part of what I meant when I said that there would be a review. We have not yet come across a suggestion which commends itself to us, largely for the reasons mentioned by the hon. Member for Woolwich, East.
It is right that, even in a brief Committee stage, we should debate twice a subject of such importance. The hon. Member for Oldham, West is speaking on behalf of the right hon. Member for Stoke-on-Trent, South (Mr. Ashley). I understand why he could not be here. I hope that he thinks that he has served his purpose and that his hon. Friend will withdraw the new clause.

Mr. Meacher: I listened carefully to the Financial Secretary. No one could be content with the general drift of his remarks. He did not justify differentiating the position of war widows in terms of a tax exemption when war widows already receive recognition of their special position by a substantial increase of £5·80 in their cash pension. The Financial Secretary did not quote the most telling part of the speech made in 1976 by my right hon. Friend the then Financial Secretary. He said that war widows should receive a plain, straightforward increase.
It would be possible to withdraw the tax exemption—whether it is 50 per cent. or 100 per cent.—and to give an increase purely in terms of the cash pension. That is a positive suggestion which I hope the Government will take into account in their review. The war widow already receives an extra cash benefit. If the Government saw fit, that could be increased further.
The Financial Secretary did not answer the main question, namely, how is it

possible to differentiate between the position of the war widow and that of the widow whose husband dies in an accident at work or as the result of an occupational illness? That is an invidious distinction which will be difficult to sustain to widows.
The Financial Secretary argued that the benefits of the Budget do not go disproportionately to the better off. I said that the bulk of the tax benefits, per capita, go overwhelmingly to the better off. We are talking of £100 million. That is small fry compared with the total benefits distributed by the Government.
I take refuge in the Government's promise to examine the whole question of benefits to widows. The Government can be certain that we shall return to this matter on the next Finance Bill. I beg to ask leave to withdraw the new clause.

Motion and clause, by leave, withdrawn.

New Clause 18

TRANSITIONAL RELIEF FOR CHARITIES

(1) Where a charity (within the meaning of section 360 of the Taxes Act)—

(a) was entitled, by virtue of the exemption granted under subsection (1)(c)(ii) of that section, to repayment of tax under Schedule D for the year 1977–78 in respect of an annual payment received by it under a disposition (other than a disposition made for a consideration in money or money's worth) under which the amount actually payable did not vary with the standard rate of income tax; and
(b) is so entitled for the year 1979–80 or any of the three subsequent years of assessment in respect of any annual payment received by it under that or a similar disposition which was made before 12th June 1979 and not varied on or after that date;

' the charity may, in addition to making a claim under that section for any of the years mentioned in paragraph (b) above for which it is entitled as mentioned therein, claim relief under this section; and on a claim so made it shall be entitled to be paid by the Commissioners of Inland Revenue out of moneys provided by Parliament an amount equal—

(i) for the first of the years mentioned in paragraph (b) above, to the difference specified in subsection (2) below;
(ii) for the second of those years, to three-quarters of that difference;
(iii) for the third of those years, to one-half of that difference.

(2) The difference referred to in subsecion (1) above is the difference between—

(a) the aggregate amount of the repayments to which the charity was entitled as mentioned in paragraph (a) of that subsection; and
(b) the aggregate of what those repayments would have been if the standard rate for 1977–78 had been 33 per cent.

(3) A claim for relief under this section must be made not later than two years after the end of the year of assessment to which it relates and, if it relates to the year 1979–80, not earlier than 1st October 1979.

(4) Where the activities of a charity which has ceased to exist are carried on by another charity, this section shall apply as if that other charity had been entitled to any repayment of tax for the year 1977–78 to which the charity which has ceased to exist was entitled.'. —[Mr. Paul Dean.]

Brought up, and read the First time.

10 p.m.

Mr. Paul Dean: I beg to move, That the clause be read a Second time.

The Temporary Chairman: It will be for the convenience of the Committee to

discuss at the same time new clause 26 entitled " Donations to charities by companies ".

Mr. Dean: I realise that on the fifth day of the Committee stage hon. Members will hope that I shall be reasonably brief. However, this is the first occasion on which the important subject of charities has been debated, and I hope that the Committee will permit me to deploy the main arguments.
The object of the clause is to provide transitional relief for charities to help compensate for their expected loss of deed of covenant income as a consequence of the income tax reductions in the Bill.
This is a modest proposal. It has a precedent in the Finance Act 1973. It follows very closely an amendment which was eventually accepted during a discussion on that Bill. It asks for relief for charities which tapers off over a three-year period. In the first year there would be full recovery of income tax on the basis of a standard rate of 33 per cent. In the second year there would be recovery of three-quarters of that sum, and in the third year recovery of half.
We ought to consider what effect the Bill will have upon charities. Charities expect that they will lose about £3 million a year in deed of covenant income as a result of the welcome reductions in taxation now proposed. In addition, the increase in VAT will cost registered charities over £1 million a year. These figures have been provided by Ministers.
Further, there will be an unspecified sum for the 100 or so small charities which are not registered for VAT. We are therefore discussing here a reduction in income and higher costs for charities as a result of the Bill. It is almost bound to have an adverse effect on the range and scope of work done by charities.
In replying to the debate, the Minister will probably say that if income tax were to be increased charities would benefit. I hope that he will not use that argument, because we now have a Government who believe in reducing income tax. The result of this for charities is that worse will come next year when my right hon. and learned Friend the Chancellor reduces income tax still further in his next


Budget. I therefore hope that the Minister tonight will recognise that the tax reductions which are so enthusiastically supported by my right hon. and hon. Friends will make the position more difficult for charities.
In earlier debates the Government turned down requests for charities to be exempt from VAT. I do not wish to argue that case again, but I suggest that having said that it is inappropriate to provide special relief from VAT for charities the Government are under a special obligation to find a more acceptable way in which charities can be helped.
Charities have a very strong case. Since the time of Queen Elizabeth I they have been given some relief from taxation, usually complete exemption. That policy has been carried on over the years by Governments of all political colours. There have been some exceptions with new taxes introduced in recent times by Labour Governments, but full relief is still the general rule. In other words, this policy has been hallowed by time, and the reasons for that relief are as valid today as ever they were.
Those reasons were put very succinctly by Lord Goodman in his report on charity law and volountary organisations. He said that charities'
 funds and assets have been voluntarily dedicated to purposes which are by definition of benefit to the community. To this must be added the immense amount of unpaid effort put into charitable work by trustees and voluntary workers. If this work were costed even on the most conservative basis, it would produce an enormous sum. Then there is the fact that much of the work is work which the state might feel it necessary to undertake itself normally at much greater expense, or which otherwise would never be undertaken. We are satsified that if a balance were drawn the advantages to the community derived from charitable funds and services would far outweigh the cost of the taxes and the rates forborne. We see therefore no valid ground for reducing the reliefs or for discontinuing the practice, when new imposts are introduced, of giving favourable treatment to charities.
I believe that that conclusion is as valid today as when it was reached some years ago. The community as a whole gets a very good bargain in the devotion of charities to caring for human ills. The care, compassion and humanity provided by countless volnteers are beyond praise.
Furthermore, the need for charities has grown and will continue to grow. We

live in days of cuts in Government expenditure, which we support, but it will mean that there will be greater scope and greater need for the work of charities. Furthermore, cuts in Government expenditure will mean that local authorities, for example, will find it more difficult to support charitable effort in their own counties and districts to the extent that they have done in the past. I am sure that we have all had examples already of charities which have written to us saying that, as a result of the cuts in public expenditure, their income from their local authorities has been reduced.
I suggest that these two factors mean that the importance of charitable work is growing. Will the Government look at the whole position of charities, not with the intention of subsidising them—that is not what they want—but with the intention of finding ways of strengthening their income position?
I should like to see companies and individuals having greater opportunities to make donations out of pre-tax profits or tax-free income. If he catches the eye of the Chair, my hon. Friend the Member for Liverpool, Wavertree (Mr. Steen) will expand on that with particular reference to new clause 26, but I wish at this point to commend the proposals made last year by a working party of the National Council of Social Service. It made a number of interesting suggestions, and I hope that my hon. and learned Friend the Minister of State will comment on them.
One proposal of the working party was that companies should be permitted to make donations to any charity up to a maximum of £1,000 per annum from pretax profits and that this should be in addition to their existing power to enter into deeds of covenant.
The second suggestion was that covenanted donations to charities by individuals should be allowed as deductions in the computing of their total income for higher rate tax purposes, subject to a maximum of 10 per cent. of tax-assessable income.
The third proposal was that individuals should be permitted to make donations to charities up to a maximum of £10 per annum from tax-free income.
The fourth and main proposal was that the seven-year period for deeds of covenant should be reduced to a maximum of four years.
I suggest to my hon. and learned Friend that all those proposals are worthy of serious attention, and I hope that he will give an assurance that Her Majesty's Government will consider them and in due course make a positive response to the House.
The second assurance that I seek from my hon. and learned Friend is that Her Majesty's Government will give serious consideration to the Goodman report on charity law and voluntary organisations. It has been gathering dust for about three years. It is time it was dusted off and that action was taken on it.
In conclusion, therefore, I ask for a response from my hon. and learned Friend to two requests. First, may we have an assurance that the whole position of charities will be considered? It is far more important now that we have in office a tax-reducing Government. May we have an assurance that consultations will take place with a view to proposals to assist charities being brought forward in the next Finance Bill, and that the valuable work done by the working party of the National Council of Social Service will be specifically considered? Secondly, will the Minister in the meantime, as we approach the closing stages of our Committee on the Bill, accept the modest new clause which I have moved?

Mr. Dalyell: I do not deny that some of us are a bit ambivalent and mixed up on this matter, and the reason is quite simple. There is a genuine question as to where charities should get that part of their income which comes directly or indirectly from the State. We are a bit short on facts, and I put the direct question to the Minister. Has he any figures available showing what the deed of covenant income loss will be in the new situation and precisely what sums we are talking about? The hon. Member for Somerset, North (Mr. Dean) mentioned £2 million or £3 million. It would be informative to know precisely what sums are involved.

10.15 p.m.

I am a member of the council of the National Trust for Scotland. As the

Under-Secretary of State for Scotland, the hon. Member for Aberdeenshire, West (Mr. Fairgrieve) knows, above all else the National Trust for Scotland wants to ensure that the agencies have sufficient funds from Government, especially the historic building councils. It regards that as primary and various changes in the tax system as secondary. On the other hand, I concede to the hon. Member for Somerset, North that he may be right about the social service charities.

I ask what may be an unreal and difficult question but it is one that I think should be asked. If the public do not give money to charities because of the changes in the tax system, how many people and how much money will be involved? Are we talking about a real disincentive, or is it something that will not make much difference to the amount that is given to charity?

The Treasury may say " How can we tell? " If the answer to my question is " We cannot possibly know the answer ". I shall accept that and make no quibble. We are on difficult ground. My heart is with the hon. Gentleman, but I am not quite sure where to put my head.

Mr. Charles Morrison: I agree wholeheartedly with everything that my hon. Friend the Member for Somerset, North (Mr. Dean) has said. It has been almost a tenet of Conservative faith to give support to charities since time immemorial. There is no time more important than now to reinforce that attitude.
My hon. Friend has said that the need for charities has grown and is continuing to grow. Due to the state of the economy the Government have had to reduce public expenditure and are asking local authorites to do likewise. There is no doubt that many local authorities will feel bound to cut grant aid for voluntary organisations, most of which will have charitable status, in addition to the cuts that they will be making in their statutorily provided services.
There is equally no doubt that voluntary organisations are capable of making up some and perhaps the majority of the deficiencies that will be the consequence of cuts in public expenditure at a much lower cost than other organisations because of the immense amount of unpaid or low-paid work that is performed by staff and voluntary workers connected with voluntary organisations.
There is a strong case for giving voluntary organisations extra assistance at this juncture in our affairs. I understand and believe that it is the Government's intention to obtain a better return on the expenditure of taxpayers' money. Surely there is no better way of producing a better return than investing a reasonable amount in voluntary organisations. However, as a result of the Budget and the proposals in the Bill, we face a paradox. Most people have more than regained from the roundabout of income tax cuts what they will lose on the VAT increase swings. Charities are to lose in the Budget and in the Bill on both the swings and the roundabouts. Their covenanted income will be reduced, as their taxed repayment will be less.
Against that background, in a manner similar to that of the Finance Act 1973, following the tax cuts of the previous Conservative Government, new clause 18 sets out to reduce the loss of income to charities. The amount involved, in national terms, is small. When that sum is broken down for individual charities, there could be a serious effect on their budgets if the relief requested in the new clause is not provided.
In considering new clause 18, I ask the Government and my hon. and learned Friend the Minister of State not simply to be generous but to realise that the small relief that we propose is an excellent investment in which the dividends, in terms of extra work undertaken by voluntary organisations, may be considerable.
Finally, I emphasise and echo what was said about the Goodman report on charity law and voluntary organisations and on the National Council of Social Service working party. There has already been far too much delay in the consideration of these matters. I hope that by the time we consider the next Finance Bill the Government will have consulted the voluntary organisations and the NCSS and be able to come forward with proposals based on the reports of the working party and the Goodman committee.

Mr. Anthony Steen: I do not believe it right to think that any one political party has the right to claim a monopoly on the welfare of people. The Labour Party tends to claim a monopoly on caring. Government sup-

porters tend to claim a monopoly on charities. That dies hard. Members of the Labour Party seek to champion the poor as though they are the only people who care for them. Government supporters seem to champion the work of voluntary and charitable organisations as though we uniquely understand the work of such bodies.
An analysis of the past 10 years shows that the voluntary bodies did fairly well under the previous Administration. The Opposition appear to be at pains to destroy the myth that they did not approve of voluntary work. The Government are at pains to show that they care, by raising pensions, by caring for the handicapped and war widows and by spelling out that the Conservative Party cares very much for those groups of people.
The two new clauses are concerned with helping charities. That term embraces a wide spectrum of activity. There are the purely fund-raising bodies which raise considerable funds to help the poor and the unfortunate in this country and overseas. Compared with the funds that the Government provide, these charities can raise only a minuscule amount to send abroad. But it is important because it offers a way, even if it is a small way, for members of the public to make their contribution, to ease the misery of refugees abroad and to teach the people of developing countries how best to use. say, their agricultural land.
At home, charitable fund-raising goes some way to supplementing State provision, which will always be inadequate. There will always be more need than the State can hope to meet. The Health Service today cannot find enough money for sufficient kidney machines, so charitable organisations carry out fund-raising. In addition, money is raised to purchase guide dogs for the blind and to help disadvantaged groups.
Fund-raising is the tradition in this country to augment funds that the State provides. It is well known that the leagues of friends raise money for auxiliary equipment for hospitals which the welfare services cannot ever hope to raise. In that sense, charity has long been recognised as a way of obtaining money for those whom the State has not yet reached or whom the State has not


felt able to put high on its list of priorities. The State is often slow and cumbersome. If equipment is urgently needed, charities take immediate action without going through bureaucratic channels. This is well observed in international disasters, where the Red Cross, Oxfam and other organisations are always first on the scene.
Nearly every school teaches its children the importance of giving. Every religion teaches that it is not just the giving of money but the giving of service to others and the giving of oneself that are of paramount importance.
What is the Government's role in all this? Should they be taking a back seat, exhorting and encouraging, or should they be dominating the scene and telling people how to do things? I believe that the Government's role and interference should be minimal. Positive encouragement, and not speeches at garden fêtes, is what is needed to help recognise the important contribution that charities are making to provide a back-up service for the Welfare State.
Yet fund-raising charities have been badly hit by the Budget. Just how badly they have been hit it is too early to say. In the case of those bodies which rely on covenant income, we are talking of tens of millions of pounds. The reduction in the rate of income tax will mean that charities will get less. The reduction in the standard rate of income tax will mean that charities will get less rebate. I ask the Government to tell us how much loss we shall see charities suffering in the next two financial years.
New clause 26 is aimed not just at continuing the traditional relief for charities, important though that is, but at trying to provide a long-term solution. While we welcome traditional relief, it is very much an interim clause which does not deal with the problems of charities getting less revenue from their covenanted income. When donors gave their covenanted money in the last five or six years, they calculated how much they would like to give, realising how much the charity would get by way of income tax rebate. By reducing the rate of income tax the Government have frustrated the wishes of the donor by making sure that every charity which received covenanted money will get less than he originally proposed.
Covenanted income is not the only source of money for charities, but larger and more established organisations are the ones which usually benefit from this method of giving. It will mean, though, that not only will they receive less money but that they will be able to give less money for the training of skills in developing countries. There will be less money available for Voluntary Service Overseas, in which I am involved, because it depends on covenanted income for the training of young people in developing countries. There will be less money for play schemes and adventure playgrounds for young children in this country. As a member of the National Playing Fields Association, which also relies on covenanted income, I know that that will be one result of the change.
Charity is not just a matter of money raising. There is a wealth of organisations which are service providers, set up by individuals or groups concerned to offer help in those areas where the State is either lacking in interest or has not recognised a common problem. In these cases, groups of people and individuals get together to provide community facilities, recognising that the State has not been able to help in such areas.
Voluntary organisations inevitably pioneer new ways of tackling newly discovered problems. The epitome of success for such groups is when the local authority takes over, providing either staff or cash. A good example is the meals-on-wheels service. Voluntary organisations, many of which are quite large, with national headquarters and local branches, see themselves not as competing with the State but as complementary to the State services, and they are increasingly dependent on public financial support to continue their work.
In the last decade, an increasing number of social service organisations have grown up and have found public bodies and public organisations to support them financially. More and more they employ full-time staff, and those connected with them are deeply committed and determined to see a service provided for the needs that they have uncovered. The problem with such organisations is that they rely not only on public funds but on volunteers. I am thinking of organizations


such as Community Transport and Community Service Volunteers.

10.30 p.m.

The Government have always taken the view that our programme and policy will encourage private enterprise, and we wish to see the growth of an independent private sector in our society and a weakening of State controls. We say that people should he given far more latitude and scope, but the cuts in public expenditure that the Government are proposing are already being manipulated by local councils as a stick with which to beat the dog.

I wonder whether Socialist councils see voluntary work as something synonymous with Conservatism and are forcing through cuts in that sector in order to get back at the Government. One London borough council has already implemented far-reaching cuts in voluntary work. It has closed four neighbourhood centres in the past few weeks. It also intends to close one legal advice centre and to reduce grants to local voluntary organisations by 25 per cent. for 1980. Those are clear indications of how it proposes to proceed.

Mr. Dalyell: Where else should such a council make the cuts?

Mr. Steen: If the hon. Gentleman will allow me to develop my argument he will sec what I am proposing.
The damage that the cuts will cause will be cumulative, especially if the voluntary bodies match the cuts proposed by local authorities with cuts in the private funds that they bring in for their work. It will not save the local authority money, because it will need to set up the services that it has cut away—but it will cost two or three times as much because the local authority will not have volunteers or private money to bring in.
It seems inevitable that other local authorities, besides the London council to which I referred, will harass local voluntary service organisations by cutting grants and interfering with the way they work. As a result, volunteers will reduce in number and morale will deteriorate. If the grant to voluntary bodies—which is usually only modest—is cut, the argument will clearly be that the State will have to find more resources to fill the gap that has been created.
With increased leisure, early retirement and an ever-present number of unemployed, voluntary work meets a long-felt need for those who wish to engage in service to others. By reducing the number of voluntary bodies and community work organisations we shall create greater problems in the areas of need.
The whole thrust of the Government's social service programme must be to prevent the inevitable attempt by local authorities to close voluntary bodies or do it themselves. It is a question not just of local authority grants, over which the Minister of State has no control, but of the Government's spending programmes. Over the past decades, voluntary service organisations have increasingly turned to Government schemes, such as the urban aid programme, for financial support.
The Minister of State will remember that the urban aid programme was started in 1968 by the then Labour Administration when £30 million was given to help areas of great social need. The programme is now running at £125 million, of which local authorities give 25 per cent. and the Government give 75 per cent. towards approved projects.
My hon. and learned Friend the Minister will also bear in mind that when local authorities are short of money they inevitably put their own schemes high on the list of priorities. Therefore, whereas in previous years the voluntary organisations tended to have a good cut of the cake, they now find themselves at the bottom of the list of priorities, with the local authority asking for more and more and putting itself at the top of the list.
The Government could do something to see that the local authorities do not take the urban aid programme away from the voluntary organisations. There are a host of organisations that benefit from the programme. The scheme should continue to be supported by the Government, and the programme should not be used by local authorities that are short of cash, taking another source of money that the Government are providing.
It is against that background that we must view my new clause. Its underlying philosophy is to rebuild and give new status and new hope to voluntary and


charitable work, by releasing potential new sources of income within each local community. I hope that my hon. and learned Friend wants to free our voluntary work from increasing dependence on public subscription. The new clause would release an entirely new source of finance. Every company, private or public, would be allowed to give the first £20,000 of its profits free of the 52 per cent. corporation tax each financial year, provided the money was given to charitable organisations. That would be the best form of encouragement the Government could give. It would back voluntary initiative with private enterprise money.
As the law stands, companies have no tax exemption unless they give covenanted income for at least six years, and usually seven. This is a cumbersome and highly bureaucratic administrative arrangement. I understand that if a company wishes to execute a covenant it must set aside the gross sum that it proposes to give to the organisation and deduct the income tax at the standard rate, putting it into a suspense account that it holds until it gives the money to the Inland Revenue, which then returns it to the charitable organisation. It is a highly artificial administrative device which gives no advantage to the charity and causes a great deal of administrative and organisational work for the company.
My hon. and learned Friend may well decide that the matter should be examined. He may well feel that far too many civil servants are involved in the Inland Revenue working on this cumbersome administrative procedure.

Mr. Peter Bottomley: Would it not be simpler to have a system whereby all donations to charities carried a tax credit with them, which the charities could claim back from the Inland Revenue in one go at the end of the year? Then there would be tax relief not only on covenanted income but on all donations—in fact, all income for charities other than that from trading services or Government grants.

Mr. Steen: My hon. Friend is quite right. There are many ways in which the Government could improve the position, whether within the present system or within a new system. What is proposed by my hon. Friend would, at least

in the short term, make matters better. What I am suggesting is a more radical solution, opening up an entirely new source of funds, which would not depend on a seven-year contract between a company and a charity but would allow every company in the country to make available up to £20,000 of its profits, if it wished, to support local charitable endeavour.
That would have an added effect. Instead of relying so much on the local authorities and being concerned about tax cuts, or relying on the urban aid programme, which more and more voluntary organisations do, charitable bodies and voluntary organisations would have released to them a new source of money within each community. I am most grateful to my hon. Friend for mentioning that point. I am sure that my hon. and learned Friend the Minister will have noted it as an important improvement.
Besides getting round the administrative nightmare of the present charitable laws, covenanted income has a further disincentive. It does not cope with inflation. When a donor gives money for a seven-year period, at the end of that time he is asked for a refresher. During that period his money has been eroded. In my experience it is unusual for donors to give a second covenant during the subsistence of the first. That is why there is a further advantage of a single gift payment system annually rather than a covenanted system.
The new clause might discourage the continuation of covenanted income. Companies will be able to get the same tax relief after one year and will therefore not enter into covenants. It will, however, release a tremendous new potential of money. Not every company will wish to spend £20,000, but the figure is flexible. The Minister may realise that that figure is plucked out of the air, because not every company will be able to afford that sum. It will, however, allow a company to give more or less if in one year it makes more profit and the next less.
We have a radical Government and we need some radical policies. Corporate philanthropy is a start. Once that is introduced, the Minister can consider whether we shall have individual philanthropy, with each individual getting an annual tax free allowance of up to, say, £100, provided that that money is given to


charity. It could be deducted from income tax in the ordinary way.
For far too long we have come to expect the State to take on more and more. As a country we have become more and more dependent on the Welfare State. We have grown greedy. There are more interest groups after less and less cash, and we are not releasing a new source of funds. Public money will never solve the problem. On the contrary, it is already making things worse.
If local authorities are allowed to choose where they will cut spending, they will inevitably cut voluntary work. If that is the case, and if the Minister does not propose to support this clause or something similar, where does he believe that the charitable organisaions in the whole spectrum of service-giving will find a new income? The 25 per cent. cuts announced by one London borough towards voluntary work is happening in other areas. In Liverpool the youth service budget to voluntary organisations has been cut by £110,000 this year, which is about a quarter of its budget. If the Minister does not release a new source of funds, how will these organisations survive? They are the very organisations to which this Government are committed.
The Minister may ask about the voluntary service unit, which has £2·5 million from the Home Office. It give grants to national voluntary organisations and headquarter bodies where their work goes beyond the responsibility of one Department. I have made inquiries of that fund, and it is already totally committed. As the headquarter grants have been cut by the public organisations that normally support them they have increasingly turned to the Home Office and the voluntary service unit to fill the gap.
Already public funds are being spueezed to their maximum, and we must release a new source of funding. I am not pleading that voluntary bodies are paragons of virtue, but if we want a strong, private, independent sector in our society we must provide a new source that can fund and sustain those organisations. We have the stark choice of greater State involvement in our lives or a wider variety of organisations and groups enriching our society and helping our communities. That is why my new clause goes to reduction in taxes. However, I have not

the root of the society in which we wish to live.
Successive Governments have avoided making a decision. The Goodman report is an example of one such decision that needs to be made. We have allowed the voluntary movement to lurch from one crisis to the next, spending disproportionate amounts of time lobbying local authorities, wooing urban aid programmes and trying to persuade central and local government to find more resources. The new clause offers one way round that. It is realistic to reduce income tax but it is hardly realistic then to use it as a way of further impoverishing the voluntary work that we all support. I am convinced that unless we introduce corporate philanthrophy in this country we shall see the slow decline and demise of voluntary and charitable effort.

10.45 p.m.

Mr. Robert Rhodes James: I intervene to express the hope that my hon. and learned Friend the Minister of State will respond helpfully to the points that have been made tonight. I declare an interest in that I am a vice-chairman of the Stop Polio Campaign of the Save the Children Fund. It is not a financial interest.
We have concentrated tonight on domestic charities, which have only domestic relevance. There are other charities with international implications that could be affected by the Budget proposals. I hope that my hon. and learned Friend will bear this in mind. I hope he will recognise that many of us who are involved in these charities feel that, although the Government have a difficult choice, they should respond to these points, recognising that there is a fount of good will and hard work in voluntary organisations in this country for this nation and abroad which should be encouraged and not discouraged.

Mr. Douglas Hogg: I make a short comment on new clause 18.
I have great sympathy with the provisions for charities as outlined by my hon. Friends. However, I hope that I shall be forgiven for making this observation. I understand that charities will be hit by the increase in VAT and the reductions in recoverable tax brought about by the noted any reference to the fact that the


donors will have a substantial increase in net disposable income. Some part of this at least may be given to charities.
I say, with respect to my hon. Friends who have put their case eloquently, that I think they are a little premature in bringing forward this clause. Until we discover whether the effect of the Budget is likely to be a net debit or a net gain for the charities, we should refrain from taking action. Either result is possible.

Mr. Peter Bottomley: I follow the intervention of my hon. Friend the Member for Liverpool, Wavertree (Mr Steen) by saying that there are some people who give donations to charity who do not pay tax. The Budget takes an extra 1 million people out of tax.
I reinforce the suggestion that tax can be recovered from donations to charity. We should include those people who do not pay tax and offer them a precedent. The change in tax relief on insurance premiums has come into effect this year, and it provides opportunities for people, even though they are not paying tax, to have a credit against those insurance premiums. I ask the Government to consider a similar arrangement for donations to charity.
We should consider very carefully whether there is still a need to have the Inland Revenue protection on covenants, because going through the business of covenants is often off-putting to people who otherwise would give donations to charities. I speak as a member of the board of Christian Aid, where a large proportion of the income comes not from covenants but from door-to-door collections. The money comes from taxed income or from people who are earning so little that they do not pay tax. I believe that tax relief should go to charities such as Christian Aid, or others that collect by donations, just as it goes to those that are established and receive convenant income.

Mr. Peter Rees: My hon. Friend the Member for Somerset, North (Mr. Dean) described new clause 18 as a reasonable and modest proposal. He moved the clause in a reasonable, modest and eloquent manner, and he was supported by many of his hon. Friends in exactly the same way. I do not wish to distinguish qualitatively between that new clause

and new clause 26, which was spoken to so persuasively by my hon. Friend the Member for Liverpool, Wavertree (Mr. Steen), but the two provisions raise slightly different considerations.
There is no monopoly of caring and compassion on either side of the Committee. We may emphasise different facets of the problem, but I am sure our objectives are the same, even though we may choose different routes by which to achieve them. I wish, on behalf of the Government, to confirm that charities have an honoured and necessary place in our scheme of things. We wish, so far as it lies within our power, to give every assistance in that direction.
My hon. Friend the Member for Somerset, North has proposed a form of relief which has a respectable and—dare I say it?—a Conservative precedent. I have already said that we on this side of the Committee claim no monopoly of compassion, but it is Conservative Governments who, on the whole, have reduced the basic rate of income tax. It is therefore Conservative Governments who, paradoxically, create the problems to which my hon. Friend has so ably drawn attention. The same problem does not face Labour Governments, and I shall not amplify that point. However, I recall that it was my noble Friend Lord Barber who, because he was the last Chancellor of the Exchequer to cut the basic rate of income tax to 30 per cent., faced this problem and solved it in his own inimitable and generous way.
I pay tribute to the right hon. Member for Leeds, East (Mr. Healey) who, when Chancellor of the Exchequer, put up the basic rate of income tax to 35 per cent. and afterwards did not claw back the relief. I am not trying to make a partisan point, but it is Conservative Governments who create the problem, and perhaps they should look at the matter more sympathetically than do other Administrations. In due course I shall deal with how we shall approach that problem.
My hon. Friend the Member for Waver-tree covered a great number of points. I do not underestimate the formidable case which he has deployed, but I shall not follow every point he made because he went slightly outside the fiscal confines. He rightly emphasised the importance of corporate contributions to charity.
There are two ways in which bodies corporate can contribute. One is by way of deeds of covenant. In most situations that constitutes a charge on income for which they will get relief from corporation tax. I am not persuaded that there are quite so many bureaucratic difficulties as he suggests in the way of companies which choose that route, but I note that point.
Beyond that, it is always open to a company to make a contribution to charity, subject to its objects clause and the vires of the board. A company is usually enabled to deduct for corporation tax purposes that contribution, provided that it can be said to be wholly and exclusively incurred for the purposes of its trade. Therefore, perhaps the position is not quite as stark as my hon. Friend has outlined. However, I recognise that if the donation is proportionately too large the Inland Revenue could cavil at it and tend to argue, reluctantly perhaps, that it is not wholly and exclusively incurred for the purposes of trade. However, my hon. Friend adopts a bolder and clearer-cut approach, and probably it simplifies the task of directors, but I am not sure that that is always the case. Every director has to consider whether it is intra vires in this country to make that kind of contribution. Even if we were to solve the fiscal problem in that way, there might still be a company law problem on which I am not perhaps competent to express a view.

Mr. Steen: What my hon. and learned Friend has stated about charitable and benevolent gifts by traders relates to an extra statutory concession set out in an Inland Revenue leaflet. The Inland Revenue takes a different view on every case. Therefore, will the Minister introduce legislation to embody this principle in statute form?

Mr. Rees: I take issue with my hon. Friend. The law states that if a donation can be said to be wholly and exclusively made and disbursed for the purposes of the company's trade it will be deductible for corporation tax purposes. It may be a matter of fine argument whether a particular donation is so made, and I recognise the practical difficulties. Individual inspectors may take different views on

the matter. The principle is enshrined clearly in revenue and does not depend on any extra-statutory concession.
My hon. Friend the Member for Woolwich, West (Mr. Bottomley) made the interesting suggestion that if, on certain terms, a donation is made to a charity there should be an equivalent subvention, whether by way of tax relief, by the State. That is a novel suggestion and it may have considerable merit. However, it points to the conclusion that I have arrived at and which I offer diffidently to the Committee. The Goodman report was published in 1976. My hon. Friend the Member for Somerset, North pointed out that it was a statute from the reign of Queen Elizabeth I that first attempted to define charities, and there has been a string of cases since that time. Many Governments have applied their minds to the matter.
The hon. Member for West Lothian (Mr. Dalyell) said that there have been problems, and one has only to look at the law books to see how many cases the subject has generated. It is a continuing problem, and however shrewd, expert and accomplished the members of Lord Goodman's committee were they cannot have said the last words on the subject. It is noticeable that there has not been an opportunity to debate the report, although it has lain read but slightly uncherished for three years. The report makes the point that the time has come to look in the fiscal area at the position of charities and individual or corporate bodies that are minded to make donations to them.
We would be ill advised to tackle the problem piecemeal. I understand the motives that have led my hon. Friends to put down the new clauses, but the problem is wider. My hon. Friend the Member for Grantham (Mr. Hogg) highlighted another aspect of the problem. I hope that hon. Members will be able to discuss the problem in the round in the future. It is the Government's firm intention to consider the problem in the round. We do not feel ourselves necessarily tied to the Goodman report, although it may be a starting point for our examination. I hope that we shall be able to come to positive and practical conclusions that will be laid before the House in a subsequent Finance Bill.

Mr. Paul Dean: I am grateful to my hon. and learned Friend the Minister of State for his remarks. Earlier in the debate he said that he recognised, as I do, that it is a tax-reducing Government who create problems for charities as far as covenanted income is concerned. Therefore, our obligation to them is the greater. My hon. and learned Friend has said that he will consider the matter with a view to bringing forward constructive proposals in a future Finance Bill. I should like to press him further.
Conservative Members expect con-confidently that there will be further reductions in income tax in April's Budget, and it is important that the proposals for further relief should be brought forward at that time. Will my hon. and learned Friend be more forthcoming on the matter? Further, will he assure the Committee that he will have early consultations with the charitable bodies with regard to the various proposals that they have put forward in response to the Goodman report and the new situation that has been created by a Government who are dedicated to reducing personal taxation?

11 p.m.

Mr. Rees: I hope that I can respond with directness, because I know how keenly my hon. Friend feels about this subject. The Chancellor stated that our hope is to move to a basic rate of 25 per cent. It is impossible to forecast precisely when that will take place, but if we are not able to introduce anything more positive before long this will add zest and urgency to our searches.
We have received many representations and have given them careful consideration. I hope that we shall give equally careful consideration to further representations that are appropriate in the light of the debate and the assurances that I have given. I hope that that sets my hon. Friend's mind at rest. We do not approach this problem with a closed mind.
This is a question not only of deeds of covenant but of donations generally and gifts by the corporate sector. The issue must be considered in the round, with the knowledge that there are already reliefs for charities.
It is important to draw all the threads together rather than to deal piecemeal

with the problem. In the light of the clear affirmation that we recognise that charities have an honourable and necessary place in our scheme of things, I hope that my hon. Friends will not feel obliged to press the new clause to a Division.

Mr. Steen: My hon. and learned Friend, the Minister of State, has been kind in saying that he will examine these matters, but I remind him that new clause 26 aims to deal with the position of local authorities which are stating publicly that they will cut their cash grants to voluntary organisations this financial year. That will result in an immediate reduction in services. The urban aid programme, which has filled the gap, will be used for more and more public sector rather than voluntary activities.
Where will the money come from for those organisations which have no other source of income? New clause 26 would provide a way round the problem without much cost or difficulty and without being a greater burden on public sources —which was the previous Government's solution—

The Temporary Chairman (Sir Stephen McAdden): Order. The hon. Member is making a long intervention.

Mr. Steen: I am obliged, Sir Stephen. I wish to finish my point, if I may. How will charitable bodies cope if there is no other source of cash available to them?

Mr. Rees: I indicated clearly that deeds of covenant are still open to bodies corporate. I have no doubt that they will take careful note of our debate, and particularly of the eloquent pleas of my hon. Friend the Member for Liverpool, Wavertree (Mr. Steen). It is always possible for a company to make modest gifts to charity which will, in many cases, be deductible for corporation tax purposes.
As my hon. Friend the Member for Grantham (Mr. Hogg) said, certain individuals will be slightly better off, and perhaps they will respond to the eloquent pleas of my hon. Friend the Member for Wavertree.
I hope that with those assurances my hon. Friend will withdraw the new clause. The problem has been stated with eloquence. My hon. Friends have put down markers which a Conservative Administration would ignore at their peril.

Mr. Dalyell: Let us be candid about this matter. The truth is that a number of reports ought to have been debated by the House of Commons in the last two or three years but have not been. It may be that 47 days were spent on the unmentionable subject that I shall not go into. Among those reports, the Goodman report and the report of the Expenditure Committee on this subject ought to have been debated. It is clearly unrealistic to ask the Leader of the House to give time to debate this subject before the recess. However, some of us think that we should debate it in November or December, well before next year's Finance Bill. The Government ought to come forward with certain concrete proposals rather than our having a general debate in a vacuum on the reports.
Therefore, I ask the Minister of State to discuss with his colleagues whether, in view of the concern that is felt, particularly about the definition of charities, which is different between Scotland and England—definition in Scotland is through the Inland Revenue, and in England it is basically done by the Chief Commissioner of Charities—the Government should come up with concrete proposals which the House could debate. This is not a party matter.
We have been debating the Bill for five days, and I can imagine that the Minister of State will have many questions to answer. I asked him about deed of covenant income and whether there are any figures on that. We have not yet any clear idea of the sums that would have to be found by the Treasury if anything like the proposals of the hon. Member for Somerset, North (Mr. Dean) were accepted.
There is another side to this coin and I put it in terms of a concrete example. The Council for British Archaeology and the University of Bradford have approached some of us who are interested in archaeology about the closure of the Scottish archaeological unit that is doing valuable work in central Scotland. If money is to be found for charities, it must be found from some other source. I do not suggest that this case is a priority, but I give it as an example because in a sense it is related to work that is done and funded by charitable organisations.
There has to be a clear choice of priorities. Does one fiddle around with the tax system and give away public funds in that way? Or does one do it through the Historic Buildings Council? Does one take it away, for example, from grants available to the Ministry for Overseas Development? I do not stick to heritage organisations. Whatever the organisation, there is competition for Government funds. That is why the House of Commons ought to debate the whole issue. I strongly agree with the Minister that this should not be done piecemeal. The matter must be looked at in toto, sensibly and rationally, and preferably in the context not of a Finance Bill but of a debate in November or December on the Goodman report and the Expenditure Committee report, when it can be thrashed out.

Mr. Rhodes James: The hon. Member for West Lothian (Mr. Dalyell) has made a sound point that was also made by my hon. and learned Friend the Minister of State. On behalf of my hon. Friends, who are deeply concerned about this matter, I offer our gratitude to my hon. and learned Friend for the manner in which he has replied to the debate. Will he, however, in view of the arguments which have been put, and in view of the great concern that has been expressed from both sides of the Committee, but particularly from the Conservative Benches, reconsider the Government's position on this matter between now and Report? To have to wait until another Budget, which is nine months away, in which time considerable harm could be done to important charities in this country, seems to us unreasonable.
I do not ask my hon. and learned Friend to reply now, but I ask him to consider very seriously the representations made in the debate and see whether, between now and Report, some reasonable proposal might be made which might meet what we regard as the very important long-term points which we have endeavoured to make, relating not only to domestic charities but to British-based charities, which are profoundly concerned and involved overseas.

Mr. Paul Dean: This short debate at a late hour has highlighted the concern on both sides of the Committee about the position of charities. My hon. And


learned Friend the Minister of State has made a sympathetic response. I am sure that he is in no doubt about how disturbed charities are about the present position and the wish of both sides of the Committee to have early action by the Government. In the confident expectation—

Mr. Dalyell: Before the hon. Gentleman sits down, a direct question was asked—

The Temporary Chairman: Order. We cannot have two hon. Members on their feet at the same time.

Mr. Dean: I was saying that, in the confident expectation that the Government will give serious consideration to this matter and come forward with constructive proposals at an early date, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 22

LIABILITIES TO BE REGISTERED FOR VALUE-ADDED TAX

In paragraph 1 of Schedule 1 to the Finance Act 1972 (liability to be registered in the provisions before the Table), for " £10,000 " (in both places) there shall be substituted " £20,000 ".'.—[Mr. Horam.]

Brought up, and read the First time.

Mr. Horam: I beg to move, That the clause be read a Second time.

The Temporary Chairman: It will be convenient to discuss at the same time new clause 17, entitled " Liability to be registered for value-added tax ".

Mr. Horam: We come to the last batch of new clauses, for which no doubt the House and the Government will be profoundly grateful. Here we begin to tread over ground that is familiar to all those who have taken part in Finance Bill Committees over the years. Indeed, it is also ground where there is a considerable degree of consensus, since new clause 17, standing in the name of the hon. Member for Upminster (Mr. Love-ridge), is in similar terms to new clause 22.
Despite that, the situation remains unsatisfactory in terms of the level of registration for value added tax, which

perhaps says something about the impotence of Parliament over the power of the Executive. It seems always that it is the Government of the day, of whatever party, who are out of step with the consensus that seems to develop between the Back Benches on the Government side and the Opposition.
In 1972, when VAT was introduced, the threshold was £5,000. It was increased twice by the Labour Government, in one case with the assistance of the Liberal Party; I say " assistance " advisedly. There is now a number of reasons why we think it right to have a further increase in the threshold.
First, it is a particular application of the general indexation argument, which should appeal to the Financial Secretary. The present Secretary of State for Energy, when speaking for the then Opposition in 1977, said that it was Conservative Party policy that the threshold should be £10,000 and that it should be reviewed for inflation thereafter. So, even in terms of Conservative Party policy as it was then, and perhaps still is—I do not know —the threshold should be higher than it now is.

11.15 p.m.

The second reason in favour of the new clause is the principal one, that it will reduce the burden of administration and cost for the small business man and the self-employed. We are talking here about very small businesses, the one-person or two-person company rather than anything larger, but they are a part of the economy which is well worth helping. As we know, the compliance costs for such a company are very high. In Committee on previous Finance Bills we have heard or read of the studies done by Bath university which show incredibly high compliance costs at this end of the scale.

Clearly, there is a disincentive here. I disagree with some of the arguments about incentives advanced in other debates during these past five days, but no one can doubt that the paper work and trouble involved in filling in the VAT forms and the rest present a great disincentive to the small business man. Moreover, it is a particular disincentive in his case because it involves time, and time in many cases can be more important than money. As someone who has


founded a small business, I know the sheer drudgery of going through all the paper work which accumulates and takes away time which should properly be spent on expanding the business. That is the main reason why we propose the new clause.

The third argument is that, just as it would reduce the costs and burden for the person who has to be subject to VAT, raising the threshold would reduce the cost of administration for the Inland Revenue, which also can be high. I myself am in favour of our moving towards all manner of simplifications of taxation, such as the one that we proposed in the last Government, of eliminating vehicle excise duty. I hope also that in subsequent Finance Bills we can move towards self-assessment for income tax. These are all sensible ways by which we can work towards the general objective of reducing the bureaucracy which we inflict upon ourselves in income tax or any other form of tax.

As to the level at which the registration threshold should be set—we have argued about the reasons for it over the years—I am rather taken with the argument put forward by the hon. Member for Upminster in a debate some time ago, when he said that the reason why he wanted it raised to £20,000 or some such figure was that to raise it to that sort of level would mean that a one-person business could take on an extra person.

As matters stand, the person below the VAT threshold tends to be the one-person business, and I think that the hon. Gentleman's point was that if one doubled the level one would make it possible for the business man or women to take on an extra person and thereby help employment, apart from anything else. I do not know how many people would be removed from VAT by such a step as we are suggesting, and it would be interesting to know from the Minister what the figure would be. But if it were 200,000 one might reasonably expect to employ a further 40.000 if one were able to add a second person to small businesses of that kind.

Therefore, if we decided to fix the level of registration at a point where that expansion could take place, that would be as good an argument as any for coming to a conclusion in this rather arbitrary

matter of the level at which the threshold should be set.

Those are briefly the arguments for the new clause. I am glad to see that it has support on both sides of the Committee, and I commend it to the Government for serious consideration.

Mr. Loveridge: The new clause proposes that the threshold of taxable supplies for which it is necessary to register for VAT should be raised to £20,000. The threshold originally started at £5,000 in April 1973. It is now double that. When it was being discussed in 1972, many thought then that it should have been started at £10,000. Indeed, the right hon. Member for Heywood and Royton (Mr. Barnett), when in Opposition and speaking in the Standing Committee at that time, said that he considered that there was an overwhelming case for the figure of £10,000.
Of course, when the right hon. Gentleman became a Minister he became convinced otherwise. I accept that the threshold was increased, but that hap-paned much later. It was raised because there was a great deal of inflation under the Labour Government. Naturally it took time for the Labour Government to raise the threshold. In 1972 Labour spokesmen were suggesting that it should be £10,000, as they are now suggesting that it should be £20,000. One wonders what they would do if they had responsibility.
It is important that turnover should fall before deregistration is possible. That would reduce the level in real terms to £17,000 for the new proposals, or £8,500 as matters stand. It is obviously desirable to allow as many traders as possible to leave this tax net so far as that is consistent with maintaining a reasonable yield of revenue.
In a written answer in January the then Financial Secretary, when asked what the cost would be of raising the threshold to £20,000, gave the following answer:
 The loss of revenue would depend on the number of registered persons who chose to deregister. If the proportion of those eligable to do so that de-registered was similar to the proportions when the limits were raised in October 1977 and April 1978, it is estimated that doubling the registration limit to £20,000 taxable turnover a year and the de-registration limit to £17,000 a year might result in a


revenue loss of somewhere about £15 million in a full year."—[Official Report. 15 January 1979; Vol. 960, c. 669]
What are the net costs? We know that there are about 400,000 control visits a year to the 1¼ million VAT-registered traders. There is one visit to every third trader. Mostly, each visit is completed in a day, but some may last more than a day. It is hard to think that they cost less than £10. They take up the inspector's time and the trader's time. It seems likely that the total cost of collection, including the traders' costs, are more than the yield. Figures are available. The overall average administrative costs were £63 per trader in 1978. The yield then from firms with a turnover of less than £20,000 was £350. However, that is an average. Averages conceal wide variations. It is probable that at the lower end of the £10,000-£20,000 bracket the costs of collection are substantial.
If there is evidence that the combined cost of collection—that is the time spent by traders and the costs of inspection—is more than the yield, there will be a strong case for saying that the tax is hardly worth the colection. In any event, will my hon. and learned Friend the Minister of State consider whether the limit should be increased in line with inflation? EEC directives would be met if we went that far. Even if the Government do not feel able to go to the full figure, a great deal of encouragement would be given to small traders if inflation were met. It would help if the present deregistration figure of £8,500 were increased by £1,000.
Many traders are caught in a trap. Although their annual turnover may be within the sum that should allow them to deregister—this was true last year, and I assume that it continues to be true—if their quarterly expenditure reaches £2,500 they are still not able to deregister.
It was said in the House of Commons last year that if the deregistration limit alone were raised by £1,000 it might result in 50,000 traders deregistering. That would surely be helpful for smaller traders and for the Government's inspectorate. It would be helpful to take out of the tax net those who are in a yo-yo position, where one moment they are in the tax net and the next they are out.

The work for the inspectorate must be very heavy.
We appreciate that the new rate of VAT, which is welcome because it is simpler and is a single rate, means, none the less, as it is higher, that the tax will be more wealth-collecting at lower thresholds. Equally, the higher rates must be an added burden for some of these small traders. A firm with a turnover of £15,000 or so, and qualifying to pay VAT, might be at the point of deciding whether to take on another member of staff. I am grateful to the hon. Member for Gateshead, West (Mr. Horam) for reminding the House that I raised the matter on a previous occasion. It is an important aspect. The time when a small firm takes on its first new member of staff is a moment of decision whether it will expand. This is a significant moment for the future of full employment.
I therefore hope that the Government will consider at least raising the threshold, even if they are not able to go as far as the new clause requests. Anything that they can do will be much welcomed by the small traders.

Mr. Graham Bright: The importance of small businesses to the British economy has been clearly recognised by hon. Members on both sides of the House in recent years. In the election campaign both major parties thought it right to propose measures to increase the role of small businesses. They are the single most potent force for expansion in our economy. That is why I support new clause 17.
The present position is that there are more than 1,250,000 companies registered for VAT. Each year more than 400,000 visits to these businesses are made by VAT officers. A total of 12,250 man-years was spent in the administration of the tax in the financial year 1977–78.
The prime responsibility of these firms is to create more productive wealth. However, those with a turnover threshold as low as £10,000 per annum have a difficult task. Almost every small business in the country is liable to VAT. It is my view and that of a number of my hon. Friends that this situation should be changed. The proposal that we put forward is to raise the threshold to £20,000 per annum That would take about


500,000 small businesses out of the system. The cost of the change would be relatively small in revenue terms—only £40 million per annum, according to the latest estimates, in January this year. Against that can be set the saving in manpower that would follow—about £25 million per annum, according to my best estimate. There would be an immediate saving in the number of visits and civil servants' time.
The hidden cost placed on firms by necessary book-keeping and the employment of accountants would be removed at once. The lifting of the tax and the administrative burden would alone provide a greater economic stimulus than the nominal loss of revenue. This modest proposal will involve immediate savings in the administration of the tax and act as a powerful stimulus to small businesses. It will stimulate economic activity and promote employment. This will cover the temporary and minuscule loss of revenue.
In view of the compelling arguments in favour of the new clause, I hope that it will be possible for my right hon. and learned Friend to give it careful consideration.

11.30 p.m.

Mr. Shersby: At this very late hour, when hon. Members are looking forward to getting to their beds, it is nevertheless important that we should probe just a little further the question of the imposition of VAT on small businesses. Equally, it is important to consider the benefits that would accrue to the Customs and Excise, and consequently to the taxpayer, from staff savings resulting from a marked reduction in the number of 1¼ million registered VAT traders.
We know, for example, that, following the increase in the threshold after the 1977–78 Budgets, about one-fifth of the traders eligible applied to deregister. If the threshold were now to be raised to £20,000, as is proposed in the new clauses now being considered—and accompanied, as it would be, by considerable publicity —the number of firms deregistering would be substantial.
The trouble is that in the past the increases in the threshold have been pretty modest by any standards, and the encouragement for traders to deregister and to go through the aggravation of

doing this has been pretty small. Only a dramatic change in the VAT threshold will persuade a number of them to take the necessary action. A really big lift would do the trick. It would save money in collecting VAT and at the same time give a boost to the small firms and to employment.
It is my view that, because the threshold is far too low, many small firms are working only half-time and that whereas prior to the introduction of VAT they employed a number of people, now they do not do so. I know—as, I daresay, do other hon. Members—of small firms that today are working only half-time, and where the sole proprietor is keeping just below the tax threshold simply to avoid having to cope with all the paper work and aggravation that VAT involves. I know of one firm that used to employ seven men and now employs only one. The reason is that the VAT threshold is too low.
That is the kind of position that I wish to draw to the attention of my hon. and learned Friend tonight. It is no good having small firms working half-time simply because they are not prepared to cope with the very low threshold.
My hon. Friend the Member for Upminster (Mr. Loveridge) and my hon. Friend the Member for Luton, East (Mr. Bright) mentioned the 400,000 control visits which take place every year. These visits are made by VAT officers. Last year these visits resulted in the detection of about £50 million under-declared tax and the discovery of declarations of too much tax of about £4 million. But what did those 400,000 control visits really cost in terms of staff time, travelling and other overheads? I would hazard a guess that if the costs of those visits were properly computed they would constitute a very substantial amount.
As every hon. Member knows, it is not only the cost of those visits that presents a disincentive to small firms; it is the headaches that go with them. It is the feeling among many small traders that they are being hounded by officers of the Customs and Excise and that the VAT man is one of the factors which detracts from the pleasure of engaging in small business and the fun and enjoyment which come from expanding it and offering other employment.
It is important for us to recognise these factors, nebulous though they may be, and to realise that we have not only to raise the threshold but to get rid of some of the pressure which small traders feel is exerted on them unnecessarily by officers of the Customs and Excise, however admirably they may carry out their duties. I have no doubt from my personal experience that in the vast majority of cases they are carried out admirably and fairly. I am glad to see that my hon. and learned Friend is listening attentively to the powerful points that I am making in support of the new clauses.
I turn for a moment to the EEC directive. In asking my hon. and learned Friend to consider raising the threshold I am conscious of the existence of the sixth directive, which, as we all know, provides that member States may raise their registration limits in line with inflation but no more. I ask my hon. and learned Friend to consider whether the original thresholds have not, in practice, proved to be far too low. If he is of a mind to agree, I hope that he will discuss the problem with our friends in the EEC to see whether it is possible to obtain a fundamental revision of the whole business of EEC directives and the question of the threshold as it is applied to small businesses. Only if the threshold is reduced dramatically shall we be able to achieve the lift-off of which the Government Front Bench has spoken and which it has persuaded us is right in terms of increasing employment.
There needs to be some incentive, such as less tax to pay, fewer headaches and less aggravation for the small trader. The cost would be small—only about £15 million in a full year. That figure was given in answer to a parliamentary question on 15 January, at column 669. If the cost of controlled visits is deducted, the revenue loss will be smaller. I ask my hon. and learned Friend sympathetically to consider that which has been put to him on behalf of the small businesses which so desperately need to rid themselves of unnecessary paper work and get on with the job of manufacturing, and thus creating employment.

Several Hon. Members: Several Hon. Members rose—

The Temporary Chairman: As time marches inexorably on, I express the hope that those hon. Members whom I am

about to call will remember that tedious repetition consists not merely of one hon. Member saying the same thing over and over again but of a number of hon. Members saying the same thing over and over again. I hope that hon. Members will endeavour to make their remarks brief and interesting.

Mr. David Atkinson: I support my hon. Friend the Member for Uxbridge (Mr. Shersby) with regard to new clause 17. I wonder whether the Committee appreciates that the current VAT threshold of £10,000 a year does not reflect, in real terms, the value of the original level set in 1972. That figure was £5,000. Inflation pushed the real value to £10,000 two years ago. We had to wait until the last Budget for the threshold to be raised to that figure.
For the threshold accurately to reflect the original value of the level set in 1972 it should be about £12,500. Because it is not, more small businesses than ever before are obliged to undertake the burdensome commitment of administering VAT. It may be said that that is acceptable if a sizeable Exchequer revenue is produced. We have just heard that that is not the case. With 500,000 small businesses liable to VAT registration the tax figure per business is about £80. That is peanuts, bearing in mind the work given to thousands of Customs and Excise officers—for which they are paid—and the extra work given to small businesses—for which they are not paid.
The Chancellor's Budget was described as " bold ". That is an apt description. But my right hon. and learned Friend has not been bold in respect of small businesses. I hope that he will accept new clause 17. It is to the small businesses that we must look if unemployment is to be reduced. We know that many thousands will be made redundant as a result of the overmanned nationalised industries being brought back to viability. I am not convinced that there are not thousands of skilled people who would prefer to do their own thing and set up a small business if they were encouraged to do so. At the moment they are frightened of all the administration that they are obliged to undertake, not least in relation to VAT.
I am concerned about the effects of the technological revolution. It will mean


large-scale redundancies. We do not yet know where they will take place, but many people will be looking to supply services for others and we should not put obstacles in their way. The Government have not succeeded in encouraging small businesses to be the dynamic element in the economy. I hope that the Minister of State will accept the new clause.

Mr. John Page: It is only once every seven years that I attempt to intervene in the esoteric nuances of the Finance Bill. I usually speak only on the taxation of the Easter offerings of incumbents, but in order to follow your ruling exactly, Sir Stephen, I am happy to say that the speech that I was intending to make has been brilliantly and incisively made by my hon. Friend the Member for Luton, East (Mr. Bright).
In order that there should be no vain repetition, I say only that if it costs the Revenue £25 million to make a net gain of £15 million, that seems to be an unnecessary expenditure. If those figures are correct, I hope that the Minister of State, who is so mature, worldly and sensible, will feel that, even if he cannot go all the way up to £20,000, he would like to make a gesture—say £15,000—in the right direction.

Mr. Peter Rees: How can I resist the blandishments of my hon. Friend the Member for Harrow, West (Mr. Page)? There is always a certain charm in hearing old arguments put elegantly and persuasively, as they were by the hon. Member for Gateshead, West (Mr. Horam) and my hon. Friends the Members for Bournemouth, East (Mr. Atkinson), Upminster (Mr. Loveridge), Uxbridge (Mr. Shersby) and Luton, East (Mr. Bright).
The Committee has addressed itself to the problem before. I was delighted by the intervention of my hon. Friend the Member for Harrow, West, not just because of his kind personal remarks but because it is about seven years since we first addressed ourselves to the matter.
The arguments that commended themselves to the Labour Opposition in those days did not commend themselves to the subsequent Labour Government. I recall in 1972 the hon. Member for Sheffield, Attercliffe (Mr. Duffy) ably supported by his right hon. Friend the Member for Heywood and Royton (Mr. Barnett), per-

suasively advancing arguments for a limit of £10,000. In 1973, the right hon. Member for Dudley, East (Dr. Gilbert) advanced the more modest argument for a limit of £7,500.
When those Members moved into Government, slower progress was made, but, encouraged and coaxed by the Conservative Opposition, they eventually raised the figure to £10,000. The Committee will see that we do not come entirely fresh to these problems, but that does not mean that they are not problems which are well worthy of our consideration.
I diffidently put to the Committee one or two grounds for pausing and reflecting on the new clauses. Our objection is not primarily on grounds of the cost, which we have been reminded is between £10 million and £15 million. There is, first, the distortion of competition. Perhaps we underestimate the fact that de-registration puts small businesses at a slight advantage, although in some respects it is counterbalanced by disadvantages, compared with almost equally small businesses that are slightly above the limit.

11.45 p.m.

Secondly, there is a limit imposed by the EEC sixth directive. That limit is now about £11,700. I know that EEC directives tend to be rather lightly brushed aside in the House, but I must pay certain respect to them, and I hope that the Committee will understand the Government's difficulties in that regard.

The argument that has perhaps most impressed me is that no great ardour was demonstrated when the limit was last raised—by the previous Government, firmly and courageously pressed by the then Conservative Opposition—to £10,000. It was subsequently found that only a fifth of those traders who were entitled to deregister—admittedly, as many as 40,000—chose to take that course. That leads me to suspect that perhaps the advantages of deregistration are not quite as compelling as they have been outlined, today or on previous occasions. As I have said, I am well conscious that I have in the past pressed the case for deregistration.

If hon. Members said " Let us make deregistration compulsory ", it might add an extra dimension to the debate. It would


certainly save a great deal of Customs and Excise time. But I am not completely confident that hon. Members would press the Government to make it compulsory.

Therefore, I hope that the Committee will pause and reflect. If one of the clauses were reintroduced, making de-registration compulsory, perhaps we could look at it on grounds of convenience to Customs and Excise and to small businesses generally.

The last ground that I stated certainly has persuaded me. I do not have a closed mind, and I could never resist the blandishments of my hon. Friend the Member for Harrow, West. But I hope that hon. Members will not press the new clauses to a Division. The Government would be prepared to look sympathetically at a proposal to make deregistration compulsory and at the new arguments then advanced.

Mr. Horam: I am slightly encouraged by what the hon. and learned Gentleman said about deregistration, and possibly Government Back Benchers are also encouraged. But I am discouraged by what he said about all the other arguments on raising the main level for registration.
We all know and admire the hon. and learned Gentleman's considerable skill as an advocate, but I sometimes think that he chooses to use all the arguments rather than select the best. The arguments about distortion of competition and EEC directives are distinctly the worst to use in this context. The hon. and learned Gentleman would have been better advised to stick to his last argument.
However, it is the tradition that after this set of debates, which we have almost every year on the Finance Bill, the Government of the day ultimately, with some delay, accede to the view expressed by the Opposition. I hope that on this occasion the delay will he short.

Question put and negatived

Schedule 5

REPEALS

Mr. Peter Rees: I beg to move amendment No. 68, in page 22, line 4, column 3, at end insert ' section 15(2)(d).'.

The Temporary Chairman: With this we may take Government amendment No. 69.

Mr. Rees: One of the clauses that we have debated and passed provides that the British National Oil Company should not enjoy exemption. The provisions in the Petroleum and Submarine Pipe-lines Act are therefore otiose. I hope that the Committee will accept these amendments.

Amendment agreed to.

Amendment made: No. 69, in page 22, line 6, leave out ' This repeal ' and insert
' The repeal of section 9(1)'.—[Mr. Peter Rees.]
Schedule 5 as amended agreed to.

Bill reported, with amendments; as amended, to be considered tomorrow and to be printed. [Bill 38.]

CUSTOMS DUTY (PERSONAL RELIEFS)

11.51 p.m.

The Minister of State, Treasury (Mr. Peter Rees): I beg to move,
That the Customs Duty (Personal Reliefs) (No. 1) Order 1975 (Amendment) Order 1979, a copy of which was laid before this House on 15 June, be approved.
The order is extremely simple in conception and, I hope, in execution. Customs and Excise authorities have power to make orders simplifying the calculation of the amount of customs duty and VAT payable on goods imported by passengers. A simplified combined rate can be charged on the first £70 worth of goods brought in by passengers over and above duty and tax free allowances. The system does not, however, apply to goods like tobacco, wines and spirits, on which there are high excise duties.
The last order in this series was made in 1975 and amended in 1976 to take account of the then revised rates of VAT, of 8 per cent. and 12½ per cent. These orders are necessitated by the consolidation of VAT into a single rate of 15 per cent. They are simple, convenient and for the advantage of people importing goods personally into this country. On that basis I commend them to the House.

11.52 p.m.

Mr. Denzil Davies: The hon. and learned Gentleman says that the order is simple, but I find it difficult to understand. When I had to move it from the Dispatch Box, when we changed it before, I did not understand it. However, I am sure that the hon. and learned Gentleman understands it. The explanatory note is not much help. It is very brief. In future perhaps we could have more explanation of the order, which is not entirely clear.
The figure of 8 per cent. goes up to 15 per cent. We understand that. The figure of 12½ per cent. is substituted by 20 per cent., and that does not make much sense to someone reading it for the first time. One would think that the 12½ per cent. should go up to 15 per cent., so why should it go up to 20 per cent.? Perhaps the Minister can tell us.
The effect of the order is clear. Anyone bringing in personal imports, with the exceptions mentioned, will pay 15 per cent. VAT. It is a consequence of the rather silly and mad things that the Government did in putting up VAT to 15 per cent., but can the hon. and learned Gentleman explain more fully how the 12½ per cent. becomes 20 per cent.? Will all goods brought into the country by British tourists from abroad, except wines, spirits and tobacco, be subjected to 15 per cent. VAT? Is that the only tax they will pay, or is that on top of customs duty?

11.54 p.m.

Mr. Peter Rees: The right hon. Gentleman appreciates my difficulties, as he has grappled with them himself. In the days when he presided with such distinction from the Government Benches the rates of VAT were 8 per cent. and 12½ per cent. The composite simplified rate imposed in these cases was 12½ per cent. and 16⅔ per cent. We have taken a new rate of VAT of 15 per cent. and rounded the single flat rate up to 20 per cent.
I hope that that explains it adequately. I tried to explain, with too much haste because of the lateness of the hour, that this does not apply to goods such as tobacco, wines and spirits, on which there are high excise duties. However, it does apply to other personal goods that a passenger may have bought. It is always open to the passenger to have his goods assessed on a proper, non-simplified basis, but it will almost invariably be found by those coming to our shores—whether they are resident or not—that it is to their advantage to accept the single flat rate of 20 per cent. I hope that that reassures the right hon. Gentleman and the House.

Mr. Denzil Davies: I thank the hon. and learned Gentleman. He has been on the Treasury Bench all day. He has explained the matter very well, and now I fully understand it.

Question put and agreed to.

Resolved,
That the Customs Duty (Personal Reliefs) (No. 1) Order 1975 (Amendment) Order 1979, a copy of which was laid before this House on 15 June, be approved.

LIVERPOOL INNER RING ROAD

Motion made, and Question proposed, That this House do now adjourn.—[Lord James Douglas Hamilton.]

11.56 p.m.

Mr. David Alton: I am grateful for the opportunity to bring before the House the problem of the Liverpool inner ring road. The construction of the road must be seen against the background of public expenditure cuts and the energy crisis. It must also be seen in the context of Liverpool's inner city problems and their possible solution.
Yesterday the Conservative-controlled Association of County Councils issued a press release detailing a package of what it called " revolutionary ideas ". If one accepts that revolution is bred out of disillusionment, cynicism and rebellion against measures that are basically repressive, the ACC's ideas could be called revolutionary. It talks of delaying fire protection in elderly people's homes and stopping the pocket money given to them; charging for nursery school education and further education; stopping free school milk, stopping subsidies for school meals, and reducing nutriment in those meals; repealing consumer protection legislation because it costs too much, and abandoning public participation in planning for the same reason.
All of those revolutionary ideas are necessary according to the Conservative ACC because of the need to cut public expenditure. The same argument was put forward by the Chancellor of the Exchequer and the Secretary of State for the Environment when they announced the cuts of £300 million in rate support grant to local authorities.
These cuts have resulted in jobs being lost to local government, and to basic services such as meals on wheels, home helps, and housing programmes being slashed. Yet at the same time as all these things are happening the Merseyside county council, also Conservative-controlled, is embarking on the construction of a £40 million monstrosity known as the Liverpool inner ring road.
Dreamed up in the 1960s by planners and politicians whose eyes were bigger than their pockets, it was first called the

inner motorway. It was opposed at that time by the man—Councillor Trevor Jones—who later became the leader of the Liverpool city council and the Liberal group in Liverpool. Indeed, they petitioned the House of Commons at that time.
Parts of the road were to be 10 lanes wide, and it was responsible for the decimation of homes and businesses alike. During that decade our city lost more than 70,000 people as a direct result of redevelopment plans. These plans ripped and tore the heart out of the city, created barren wastes, and shanghaied people to places they did not know and did not want to go to. And all for what? A decision taken in the early 1970s by the same group of dedicated megalomaniacs and lunatics led to the abandonment of this road that had led to nowhere.
But within a year they had decided on a modified version of the road, this time to be known as the Liverpool inner ring road. It affected more jobs, and more homes, and turned one area—Vauxhall—into a traffic island, preventing local rehousing, requiring more bulldozing and costing ratepayers and taxpayers a more modest £40 million. Again it was opposed by me and other Liberal members of the city council. Indeed, I petitioned the House of Lords to try to prevent the Merseyside Bill—the enabling power—going ahead.
Those who argue in its favour say that the city needs the road, but I believe that Liverpool needs it about as much as a goldfish needs a folding bicycle. How can any body justify building this road while my constituents cannot get work? In some parts of my constituency 30 per cent. of the people are without jobs. How can this road-bulding be justified while people still live in homes without inside toilets and bathrooms? The last census showed that in Edge Hill there were more people without inside toilets in their homes than in any other town in England. How can this road be justified while children in the city of Liverpool still attend schools that were built in the nineteenth century, and while our environment still bears scars left since the Second World War?
The chairman of the Merseyside county council is said to keep in his drawer


a photograph of Adolf Hitler. At any rate, that is what he said in the local newspaper. Perhaps that is where he derives his megalomaniac delusions from. Certainly he is trying to finish off the job that Hitler started in wrecking and ruining the city of Liverpool.
While I am on the subject of the county council and those who run it, I am profoundly disturbed that the chairman of the highways and tunnels committee of the county council, Councillor Hubert Harriman, is an employee of one of the half-dozen consultants involved in the feasibility study of the Liverpool inner ring-road—a firm that was paid £50,000, a quarter of the total fees paid to the consultants. I am even more concerned that, despite the fact that he has actively promoted this fee-generating project, the authority itself has allowed the highways committee chairman to go on with his job. The Secretary of State will be aware that this matter was the subject of correspondence between himself and Councillor Trevor Jones, the then leader of the city council, and more lately I have written to the Secretary of State for the Environment and to the Home Secretary on the matter.
Furthermore, I think it is political sharp practice that documents were kept from members of the council allegedly on the grounds that they were too complicated for them to understand. Those documents were produced by the county council and totally disprove the need for an inner ring road.
I wish to quote from sections of technical report No. 25, copies of which I furnished to the Minister this evening. In these documents drawn up by officers of the Mersey county council it is said:
 We estimate that of the 400 to 450 jobs probably displaced, 55 per cent. might be retained in the central or inner areas, 15 per cent. might be retained in Liverpool and 30 per cent. lost to the local economy … Most firms interviewed feared the effect of 100 to 200 per cent. increases in rents on relocation.
If they stayed in Liverpool they would probably be forced out of business because of the high cost of relocation.
Elsewhere in the report it is said that
 the loss of any further jobs must be regarded as a serious disbenefit in the context of inner Liverpool.

Later the report says that
 A survey of 23, mainly transport-intensive firms, in and around the central area, indicated that accessibility is not a major problem.
In other words, they did not believe they needed a ring road in order to get in and out of Liverpool.
The report also says that
There is little evidence to support the view that this form of public sector investment would create confidence in the area or stimulate private investment … The most effective assistance from the public sector to firms operating in the area would seem to be the provision of sites, the creation of an atmosphere of security, financial assistance and motorway links. The primary requirements of incoming firms to inner Liverpool are sites and a suitable supply of labour.
Those requirements do not include an inner ring road.
Again, in the report those who were employed by the Merseyside county council to evaluate the necessity for this scheme say:
 The valuation and job opportunity analyses confirm the above. Marginal improvements in land value as a result of easier assembly of sites, the availability of services and some improved access if the road is built is not likely to be sufficient to offset real value losses as a result of demolition.
Finally, the report says:
 However, results indicate that road construction is less efficient in creating jobs in the construction industry than most other construction packages.
The city planning officer adds his views to that startling report when he says:
 The county council's predictions of a 43 per cent. increase in traffic by 1998 are wrong. The London Road shopping centre will be seriously hit by the ring road as designed. The road would mean unnecessary job losses and would harm the city's environment. Despite the size of the ring road, it would not in some cases speed traffic movement any more than present roads.
It is evident why the reports of the Merseyside county councillors were repressed in the first place—because they damaged the case of those who wanted the road built.
The city council is opposed to the road, the Liberal and Labour parties on the county council are opposed to it, the Liverpool Echo has campaigned courageously against it, local people are opposed to it and some county council officers are against it. Yet, the scheme for the road trundles on.

Mr. Anthony Steen: Mr. Anthony Steen (Liverpool, Wavertree) rose

Mr. Alton: I hope that the hon. Gentleman will forgive me if I do not give way. Time is limited and there are 15 minutes only allocated to me. Traditionally, hon. Members are allowed to put their cases without intervention.
Not only will homes be demolished and up to 1,000 jobs lost; the London Road shopping centre, a premier shopping precinct, will virtually be cut in two. No fewer than 5,400 people arrive there daily, and the council admits that it would cost a further £2·8 million to provide alternative access for them.
All that to achieve what? Liverpool may have problems, but traffic congestion is not one of them. More people in Liverpool do not have a car than do. With the continuing energy crisis, who can possibly justify a new road? There may be no need for cars in the future, and Merseyside people would be far more grateful if a decent public transport service were provided.
When I asked the Prime Minister last week to intervene in the row she suggested that the road might bring benefits to Merseyside. To build the road might create 300 new temporary jobs in the construction industry, but weighed against the long-term jobs that benefit will be lost. Patently it is not a convincing argument for building the road.
If the Government are serious in their declared intention to rationalise public expenditure, Ministers should speak to their colleagues in the Department of the Environment to prevent the Department of Transport from making promises to pay for the promised land and motorways. Instead, the money should be used for more useful and helpful matters. While land in the city centre of Liverpool remains blighted no developer in his right mind will establish business there. The best service that the House can do for Merseyside is to abandon the scheme now.
Finally, while I do not expect a decision from the Minister this evening, urge him to go away from this place and to consider granting the right to a public inquiry. The Merseyside Bill, in reenacting the provisions of the old Liverpool Corporation Act, effectively denies

the affected businesses and residents the chance to put their case. How can this be justified? This is not the same road; it is not the same route, and it is 13 years later.
The people should be given the chance to air their grievances, and the misgivings that many of us have about this road should be properly ventilated. Otherwise, the road may go ahead but its construction will be shrouded in misgivings and doubts. I do not believe that that would be doing a service to the people of Merseyside, most of whom are up in arms about the road being built. I believe it is the worst disservice that could be done to the ratepayers and taxpayers living in that conurbation.

12.8 a.m.

The Parliamentary Secretary to the Ministry of Transport (Mr. Kenneth Clarke): I congratulate the hon. Member for Liverpool, Edge Hill (Mr. Alton) in one respect only. In his extraordinary speech he used language that was hysterical at times about those who disagree with him over the Liverpool ring road. However, in my few years in this place, he is the first Member who has succeeded, to my recollection, in raising a matter that is entirely the responsibility of local government and for which there is no ministerial responsibility. He has also raised a subject matter that has a limited effect in his own constituency and that is largely the concern of the hon. Member for Liverpool, Scotland Exchange (Mr. Parry), who has already tabled a number of questions on the Order Paper about it.
The Liverpool inner ring road is a local authority road. The Merseyside county council is, therefore, responsible for it. Despite the diatribes aimed at that authority by the hon. Member for Edge Hill this evening, the council is the democratically elected representative of the inhabitants of the area, who have pursued this matter for a long time and who are entitled to reach a conclusion on the needs of the area. Indeed, they are in a better position to do that than are Ministers in London and civil servants in the Departments of Transport and the Environment.
I realise that the road has caused local controversy. It is of local importance,


and there are conflicting views. By no means does each inhabitant of Liverpool agree with the hon. Member for Edge Hill. My hon. Friend the Member for Liverpool, Wavertree (Mr. Steen) represents his constituents, and he does not accept the strictures that have been directed at the scheme.
The question on the right local road system in the inner ring of Liverpool is decided better in Merseyside than in London. The Government do not believe that it is right to intervene in this matter. Not only is that not right; we have every confidence in the ability of the county council to come to a balanced conclusion. I am assured that it has done its best to consult the Liverpool city council and others about the modified scheme.
I know that at one time the hon. Member for Edge Hill was a member of the Liverpool city council.

Mr. Alton: I still am.

Mr. Clarke: The hon. Member has made his speech several times to the Liverpool city council. It was appropriate to make it there. He has sought to use his position in the House of Commons to involve Ministers in local disputes.

Mr. Alton: Will the Minister give way?

Mr. Clarke: I shall not give way, since the hon. Gentleman was not generous in giving way to my hon. Friend the Member for Wavertree, who has an equally close interest in this matter.
I understand that the hon. Member for Edge Hill was elected on a platform described as " community politics ". That means that one does not campaign on the sometimes complicated and difficult national issues with which the House is involved, but that one seeks to represent that it is right to go to Westminster on the basis that one will, somehow, overturn local authority issues that one has not been able to carry by the local ballot box.
The hon. Member would have resented any suggestion that someone in the minority on his council should be entitled to come to Westminster and make vehement

attacks on the majority of the council and attempt to persuade a Minister to step in to overturn decisions made by a democratically elected authority in the area for which it is responsible.
The hon. Member described those who disagree with him among the elected councillors on the Merseyside county council as megalomaniacs and lunatics. He compared one of them to Hitler. He based his case on extraordinary personal attacks, presumably confident in the knowledge that no one is here to answer him. I am sure that those attacked would vehemently answer if he made such attacks outside the protection of privilege and in Merseyside, where this decision should be taken.
That is the end of the matter. Everybody appreciates the anxiety in Merseyside and the local controversy. This is a Merseyside matter, which must be decided by the democratically elected local authority. It would be improper for the Government to intervene and overrule the decision.
I shall now deal with the pressure for a public inquiry. If a public inquiry were conceded by the Secretary of State for the Environment or the Minister of Transport there would be yet greater delay in reaching a local conclusion on the scheme. Delay is the principal problem.
Parliamentary powers for a road scheme, of which the present proposal is a modified version, were first obtained as long ago as 1966. The scheme has been modified and reduced in scope since then, in response to local pressures. That should please the hon. Member for Edge Hill.
Nevertheless, disputes about this road go back to 1966, when the powers were first obtained. The position is that, because of continued indecision, a large and conspicuous swathe of underused land now runs through parts of Liverpool, property values have been interfered with, enterprises have been stunted, and communities have been left uncertain about their future. The continuing delay of a firm decision on the road has caused substantial blight to property in the city —[Interruption.]—and in such a situation it is plain that further delay whilst a


public inquiry is now held, 13 years after the proposal was first mooted, cannot be in the interests of Liverpool.
As one who has visited Liverpool from time to time as a sympathetic political visitor and observer, I find the apparent dereliction of Liverpool one of the most disturbing sights that one can see in the city—[Interruption.] A great deal of land lies vacant and blighted. The kind of pressure that the hon. Member is seeking to bring this evening to produce further delay in reaching any conclusion on this inner road scheme would simply perpetuate the blight that is already damaging Liverpool.
If the Merseyside county council decides to go ahead with the road—and it is for the council to decide—at least if the road begins to be constructed it will be refreshing to see something being built on the ground of value to the transport system of Liverpool in replacement of the blighted property that is there at the moment.—[Interruption.]
The hon. Member referred to the excessive cost of the scheme and sought to contrast the cost with the general restraints on public expenditure which are being applied by the Government. He began with an attack on the Association of County Councils across a very wide scale, which I do not propose to reply to this evening. He made another attempt to make a local government speech in his new position as a Member of Parliament. Of course, the cost of the road will be substantial. There will be restraints, of course. But surely the hon. Member is not suggesting that the effects of the Government's restraints on public expenditure should be that no ambitious projects of any kind should be financed in Merseyside. The county council, in reaching its conclusion, will have to bear the cost in mind. It will have to bear in mind what local priorities it wishes to pursue. But the effect of the Government's restraints will certainly not be to eliminate all projects of any kind in Liverpool.
The hon. Member made other points of detail. Since he has initiated this debate, and since other Liverpool Members have asked questions on the subject since

the new Session of Parliament began, I have looked at the transport case for the road. It would not normally be justified for a Minister to examine a local road scheme. I do not propose to argue with the hon. Member about the traffic forecasts and the basic transport case. Again, it is for the county council to make its case. It is not for the Government to step in and argue matters that are a local government responsibility.
I realise that there is considerable controversy about the figures, but I can find nothing to justify the Government's taking the view that there is no transport case for the road, or that there is no need for it, or anything of that kind. As my right hon. Friend the Prime Minister said when the hon. Member went so far as to raise this matter at Prime Minister's questions last week, there are many people in Liverpool who believe that the scheme will provide for employment, release a lot of blighted land and give a badly needed boost to the area. Those members of the Merseyside county council who take that view—

Mr. Alton: They do not live in Liverpool.

Mr. Clarke: —could, I am sure, argue a restrained and sensible case to support it, probably in more cogent and sensible terms than the hon. Member has used in opposing it this evening.
My right hon. Friend the Prime Minister made the matter quite plain to the hon. Member and tonight I reinforce what she said. The Government will not take sides in this dispute. We believe that we have a system of local government under which it is right to leave responsibility for matters of this kind to the democratically elected local representatives who know best about it, and that is the Merseyside county council.
The hon. Member made an extraordinary speech this evening. He followed it by sitting throughout my speech making mutterings which I could almost catch. That underlines to me the fact that he is slightly beside himself on the subject of the road and is not taking a very balanced view of it. He has not cast a serious doubt on the county council's case, and I prefer to leave the matter to


its judgment rather than to the kind of judgment that he has demonstrated this evening.
If the council does decide to go ahead —and it is a decision entirely for the council—the Government can only hope that the project is carried forward with success and does something to help the

revival of Merseyside that we would all like to see and something to boost the industrial and employment prospects of that very troubled city.

Question put and agreed to.

Adjourned accordingly at twenty minutes past Twelve o'clock.